Orca Bay Partners, a Seattle-based investment firm, last month completed the buyout of Parametric Portfolio Associates, a financial services company, in a deal valued at slightly less than $25 million.
Orca Bay, the company’s management team, Matthew Norton Trust, and individual investor Furman Moseley make up the investor group that now owns 100% of the company. Orca Bay, which made its equity investment through the Tahoma Fund, acquired approximately two-thirds of the company, while management takes a 20% stake.
Commerce Bank provided the senior debt for the transaction, and the seller provided the subordinated debt. PIMCO Advisors LP, a member of the Allianz Group, previously owned the company.
PIMCO was advised by Putnam Lovell, and the acquiring entity and all the equity investors were advised by Windswept Capital, a Seattle-based investment bank.
Ross Chapin, a managing partner at Orca Bay, said that finding the debt for the transaction, particularly the senior debt, was difficult. “Financial services has a very narrow group of lenders who are familiar and comfortable with it,” he said. “And we hit the market place at an absolute terrible time as far as that goes.”
Nevertheless, Orca Bay, a relatively young firm started in 1998, has decided to make financial services the exclusive focus of its investment activities. Its current $40 million fund, the Tahoma Fund, has previous investments from other sectors in its portfolio, but going forward will only look at financial services. The group’s next fund, due out late this year or next year, will be marketed as a financial services fund.
Parametric Portfolio’s main product provides a tax-efficient method of index investing for taxable institutions and individuals with portfolios down to $250,000. Orca Bay was attracted to the company’s passive type of investment strategy, which it believes makes the company more resilient to market conditions, said Chapin. “It’s not a faddish type of business . . . this business has done extremely well in both ups and downs in the marketplace because it is a passive type strategy, and we like that very much,” he said.
The new owners plan to pursue further product development opportunities, increased product distribution and finding a way to link the company’s products with alternative asset products.
A Look at the Team
Orca Bay expects to close another financial services-related deal in the next 60 days, which will give the firm between 40% and 50% of the target, Chapin said. That deal will be a straight equity investment without leverage.
The firm, which takes majority and minority stakes, looks to invest between $7.5 million and $20 million in equity per deal, often co-investing with another equity investor. “It’s a little hard to define us because we’re less concerned with whether or not the opportunity we’re investing in is a buyout – in that it’s financially structured with debt – as much as we are with the opportunity,” Chapin explained.
Orca Bay currently has four partners and two associates. Among its general partners is John McCaw, the co-founder and former director of McCaw Communications.