Five Buy-Outs in Five Years for Pawleys?

Last Monday, after an extended proxy fight, PartnerRe (PRE) announced that they would be bought by Exor for $140.50 per share.  This sweetened offer to a previous Exor bid represents a 24% gain to the January 1st share price.  The Pawleys Dividend and Pawleys Growth Fund use similar stock selection criteria: we seek to identify companies with low debt:equity ratios, strong earnings per share growth, and solid cash-flow.  The Pawleys Dividend Fund typically holds 10-12 long positions, while the Pawleys Growth Fund holds 20-25 long positions.  Why is this concentration of the portfolios important and how does it relate to PRE?

In each year from 2011-2014, the Pawleys Growth Fund has outpaced the S&P by an average annualized gross total return of 6.5%.  During that time, we have had four holdings bought out for significant premiums – Par Pharmaceutical and Mediware Information Systems during 2012, and Questcor Pharmaceutical and Sapient during 2014 (total returns to the portfolio for each holding of 54%, 73%, 120%, and 44% respectively).  If the PartnerRe/Exor deal closes, it will mark the 5th buy-out of a Pawleys Growth holding in 5 years.  Given that we typically hold 20-25 positions at any time, in my opinion this is a remarkable accomplishment, and speaks to the power of our stock selection process.  It gives me confidence that the criteria we use help identify companies that other entities find valuable.

There is much attention on the Pawleys Dividend Fund this year, as it is outpacing the Dow Jones Industrial Average by over 10% year-to-date (total return).  But don’t overlook the Pawleys Growth model – despite a lag to our benchmark this year, the long-term performance trend is strong.  We never count our chickens before they are hatched – but I believe five buy-outs in five years is a fantastic result.

© 2015 Pawleys Capital Management, LLC. All rights reserved.

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