Subject: Fwd:
From: "Devon Archer" <[email-masked]>
To: "Lindsay Wright" <[email-masked]>, <[email-masked]>
Cc: "Hunter Biden" <[email-masked]>, "James Bulger" <[email-masked]>, "Michael Leonard" <[email-masked]>, "Michael Lin" <[email-masked]>
Date: Fri, 25 Jul 2014 07:53:26 -0400

Lindsay,
See attached and below email description in regards to a quick first pass at cobbling together a financial forecast of the various pieces of the proposed larger Burnham roll up entity.

I have the guys working on a baseline integrated model and will go full steam ahead on producing it if we think we're still moving forward here with this proposed concept at our next check point.  If we are moving forward we would want to figure out how the China / Harvest shareholding / partnership would play into the pro-forma financial model and account for that.  

As you'll see Burnham as a standalone is hard to put projections around relative to many factors including but not limited to the China piece.

Please review the initial business plan we drafted and these pieces of a forecast we pulled together and sync up Tuesday and go from there.  Have a great weekend!
Very Best,
D

Devon Archer
646 436 3745

Begin forwarded message:

> From: jason galanos <[email-masked]>
> Date: July 24, 2014 at 2:04:19 AM EDT
> To: Devon Archer <[email-masked]>, Andrew Godfrey <[email-masked]>
> 
> Devon,
> 
> Attached are forecasts, together with the main assumptions, of the combined Wealth Assurance and Valorlife division. Also attached are the Deloitte forecasts for Valorlife as a standalone.
> 
> We currently do not have consolidated forecasts for the businesses giving effect to the proposed combination into a Burham holdco.
> 
> Burnham Forecasts 
> 
> Burnham currently consists of Burnham Asset Management and Burnham Securities, which did $16,000,000 in sales in 2013 ($10,000,000 in 2012). The forecasts can be prepared but will be distorted for two reasons, continuing acquisitions and investment banking fees.
> 
> Acquisitions include MidAmerica and Revere Securities (separate from Revere Research already acquired). The audited financials indicate that MidAmerica produced $9,000,000 in revenue in 2013. It is on a run rate of $12,000,000 in 2014. Revere Securities when acquired will add $8,000,000 in topline.
> 
> It is unclear how to forecast investment banking fees given some of the engagements you have proposed to bring to Burnham, which would have the effect of making earnings highly volatile in the nearer term given the size of the fees. This is even more pronounced when we start working on Kirin transactions, and worse still, should Burnham start working on BHR sourced transactions.
> 
> There are other modeling considerations like the wholesale mutual fund capabilities of MidAmerica, which sells over $1.0 billion a year. We expect they would sell $200 million of Burnham mutual funds, which would be $1.0 million in placement fee income and $2.6 million of new fee income (130 bps per annum).
> 
> Similarly, as you identified we intend to offer the Burnham funds to the Valorlife and Wealth Assurance clients. This is the same model that Blackstone has identified in their purchase of Lombard Assurance, the Luxembourg PPLI provider that is our direct competitor, where Blackstone intends to make Blackstone funds available to the distribution channel. Our information is that thie proprietary distribution channel will yield significant assets, but we have not concluded what the contribution will be. Even 20% of the existing book is $1.05 billion in new assets, which would be $13 million to $20 million in fee (depending on mutual fund or alternatives), plus incentive fees, if any.
> 
> We can certainly model a number of scenarios if you direct us to, subject to the above caveats.
> 
> Additional Considerations
> 
> Based on discussions to date, we thought that the priorities for Burnham are to:  
> 
> 1) achieve scale rapidly, while accomplishing this operating in the black, and 
> 
> 2) to achieve brand and client visibility internationally through moving from the BSX listing to a NYSE listing. There is nominal execution risk to the consolidation implementation.
> 
> If Burnham does these two things, you’ve discussed it would have a pronounced positive impact on banking opportunities, especially those that you source, as well as on recruitment. Likewise, if there is the introduction of a well known Asian investor to the group there will be a pick up in M&A advisory and underwriting opportunities. Again, though, it is challenging to model, so we instead wanted you to consider two other things to analyze; core profitability today of the combined businesses (before new business opportunities and before synergies), and the intrinsic value of the enterprise at closing. The proposal is an investment at a deep discount to book value. We can demonstrate this definitively, but we arent sure how to model it.
> 
> Although it is challenging to model the business, from a market precedent perspective, there are several other examples of the combination of an investment company with an insurance business, including:  Leucadia National buying Jefferies; Blackstone buying Lombard; Apollo buying Athene and Aviva; Guggenheim buying Sun Life and Security Benefits; Harbinger buying Old Mutual Life. We think the Burnham plan follows in these footsteps.
> 
> Guggenheim’s own origins in 1999 were part of a deal that merged the business of specialty financial company Liberty Hampshire Co. with the family office of the Guggenheim family and Links Securities, a broker-dealer. Burnham & Co is poised to follow a similar path.
> 
> ------------------------------------
> The key inputs to the Wealth Assurance and Valorlife model include:
> 
> 1. SURRENDER RATES: stabilized surrender rate to historical norm of 6%
> 
> 2. TARRIFFS: rate increase (10 basis points; CHF1,000 per annum per policyholders) on existing Valorlife book to harmonize with market and Wealth Assurance (contractually permitted on 81% of the book). phased in over 2 years.
> 
> 3. PRODUCTION LEVELS: Wealth Assurance ramp back to pre-run off production (discount to 3 year trailing average) by end of year one, and entering new markets in year two
> 
> a. SALES TEAM ADDITION: did not explicitly identify the London sales team joining Valor/WAAG Sept 1 (annual production of c. $800 million)
> 
> 4. ADDITIONAL ACQUSITION(S): did not model impact of non-dilutive acquisitions in Luxembourg or Liechtenstein
> 
> 5. COST SAVINGS: phased over 3 year period in back office redundency savings (likely realized by year 2)
> 
> 6. TAX RATE: tax rate is a placeholder maximum rate as if group ends up a US taxpayer (liechtenstein tax rate is 12.5%). Group is taking tax advice for non-US income.
> 
> 7. LIFE COVER: assumption is 100% of life cover is reinsured to third party(s) (HannoverRe; Swiss Re