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Will the Magellan (ASX:MFG) share price rise after its new big investment?

Magellan Financial Group Ltd (ASX: MFG) has announced a new investment, will the share price rise in reaction?

What happened?

Magellan announced that it has entered into an agreement to buy a 10% holding of Guzman y Gomez.

The investment business explained that Guzman y Gomez is an Australian based quick service restaurant chain that makes Mexican food, with 147 stores across Australia, Singapore, Japan and the US.

Magellan will buy the 10% stake for $86.8 million in cash, subject to Guzman y Gomez shareholder approval in January 2021. The investment will form part of Magellan’s Principal Investments business. New investment bank Barrenjoey is another investment in this segment. Magellan’s Head of Governance & Advisory, Craig Wright, will be appointed as a non-executive director of Guzman y Gomez to oversee the investment. However, Magellan will have no day-to-day involvement in the business.

Guzman y Gomez is managed by a team led by the founder and CEO, Steven Marks. The management team is supported by a highly experienced board, including Chairman Guy Russo who used to be the CEO of McDonalds Australia and Kmart Group.

Management comments

Magellan Chairman Hamish Douglass said: “We are extremely pleased to become a shareholder in Guzman y Gomez. Magellan has deep investment experience in the quick service restaurant industry and we believe Magellan can both add and gain considerable insights as a major investor and supportive shareholder. Guzman y Gomez is a world class business with enormous growth potential and represents a highly attractive investment opportunity for our Principal Investments business.”

The Guzman y Gomez founder and CEO, Steven Marks, hinted at the plans for the business: “Our ambition is to be the best restaurant company in the world and, to achieve that, we need the support of the best partners and strongest board. Magellan’s global experience and track record in the QSR space is truly world class and we could not think of a better qualified or more aligned partner to have alongside us as we enter the next, most exciting phase of the Guzman y Gomez journey.”

Summary thoughts

This is a very interesting move by Magellan. Normally you’d expect one (or more) of its funds to do the investing, rather than the parent business. But I’m sure Magellan has done the research and concluded that Guzman y Gomez has a very good future.

Is Magellan trying to turn into a business that operates like Berkshire Hathaway and Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)?  It certainly increases its potential growth if it’s making direct investments in operating businesses.

Looking at other ASX growth shares in the space that are interesting to me, fund manager Australian Ethical Investment Limited (ASX: AEF) could be one to watch.

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At the time of publishing, Jaz owns shares of WHSP.
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