Sprott Hedge Fund May Rise After Raising C$200 Million in IPO

Date: Friday, May 9, 2008
Author: Frederic Tomesco and John Kipphoff, Bloomberg

Sprott Inc. may rise after the mining and energy hedge fund run by investor Eric Sprott raised C$200 million ($197 million) in the biggest Canadian initial public offering in five months.

The 20 million shares were sold at C$10 each, in the middle of the expected range of C$9.50 to C$10.50 a share, the Toronto- based money manager said in a Canada NewsWire statement late yesterday. The offer is scheduled to close on May 15.

Eric Sprott and other shareholders are selling a stake of as much as 15 percent in the firm, whose hedge funds and mutual funds have soared along with prices for oil, gold and other metals. The C$2.1 billion Sprott Canadian Equity Fund has returned 30 percent annually in the past five years, compared with a 19 percent gain for the Standard & Poor's/TSX Composite Index.

``This issue is hot, hot,'' said David Cockfield, who helps manage about $2 billion at Leon Frazer Associates Inc. in Toronto, who declined to say whether he's buying shares. ``If you think that we're in the kind of market that will continue to provide the kind of performance fees that they've been earning, then it's a buy.''

The shareholders may sell an additional 3 million shares within 30 days of the closing date to meet demand, raising gross proceeds to about C$230 million. The IPO, led by Cormark Securities Inc. and TD Securities, is the biggest in Canada since Franco-Nevada Corp. raised C$1.26 billion in December.

Valuation

The sale values Sprott Inc. at about C$1.5 billion. That's almost twice the market value of Gluskin Sheff & Associates Inc., a rival Canadian money manager that went public two years ago. Toronto-based Gluskin manages C$5.6 billion, compared with Sprott's C$6.8 billion. Gluskin's shares have risen almost a third since the IPO.

Sprott, which will trade on the Toronto Stock Exchange under the ticker SII, had net income of C$42.3 million in 2007 on revenue of C$227.6 million. A year earlier, profit was C$34.8 million on revenue of C$198.6 million, according to the sale documents. The firm won't get any money from the IPO, with all proceeds going to the selling shareholders.

Sprott's assets under management have tripled since the end of 2004, and investor inflows have exceeded redemptions for 15 consecutive months through February, according to a Canadian regulatory filing last month.

Eric Sprott, 63, has been managing funds for 35 years and owned 78 percent of the money manager before the IPO. He started his career in the investment industry as an analyst at Merrill Lynch & Co. and founded Sprott Securities in 1981.

To contact the reporter for this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net.