ORIX Corp.'s planned purchase of a controlling stake in Robeco Group will elevate the Tokyo-based financial firm from a bit player in global money management circles to the big leagues.
Under the deal, announced Feb. 19, ORIX will buy a 90.1% stake in Robeco — which had €189 billion ($248 billion) in assets under management at the end of 2012 — from Rabobank. Some market veterans say the switch could leave the Rotterdam, Netherlands-based money manager with a parent company better positioned to support its continued growth.
Building on the $11 billion in assets managed by Mariner Investment Group LLC — the hedge fund firm in Harrison, N.Y., that ORIX acquired in 2010 — the Robeco deal would give ORIX roughly $260 billion in global assets under management, ORIX spokesman Haruyasu Yamada said.
That's just off the pace set by Japanese market leader Nomura Asset Management, which had ¥25.633 trillion ($280 billion) in global AUM as of Dec. 31, according to Nomura's website.
Speaking at a Feb. 19 news conference, ORIX executives predicted their firm's financial network in Asia and the Middle East could help create greater regional diversity for Robeco, which is more than 95% focused on Europe and the U.S. At the end of 2012, only 2% or so of Robeco's assets came from Asia-based clients.
At the same time, ORIX executives expressed a willingness to make additional investments in asset management, designating Robeco as ORIX's “primary platform” and “ideal vehicle” for pursuing its global asset management ambitions.
Neither Yoshihiko Miyauchi, ORIX's CEO, nor Makoto Inoue, president and chief operating officer, could be reached for comment.
In an interview Feb. 25, Robeco Group CEO Roderick Munsters said the strong support ORIX executives have expressed for Robeco's management team and business strategy has gone a long way toward answering investment consultants' and clients' immediate concerns that a change in ownership could disrupt Robeco's business.
Asked whether investment consultants would put Robeco in the penalty box until the dust settles, Mr. Munsters noted his firm had found itself “on some watchlists” after Rabobank put Robeco on the block, but still managed to garner record net inflows of €18.4 billion in 2012.
In a telephone interview, Sarah G. Lien, a Singapore-based senior research analyst with Russell Investments, said all signs point to “business as usual” for Robeco's investment teams and back office.
J. Steven Kiser, director-trust & investments for Robeco-client American Electric Power Co., said so far, he views the transfer of ownership as a non-event. American Electric, Columbus, Ohio, has $7.8 billion in retirement plan assets.
Observers said issues such as long-term contracts and equity ownership might require further discussions. Robeco affiliates include Harbor Capital Advisors Inc., a mutual fund firm; managed futures specialist Transtrend B.V.; and U.S. equity boutique Robeco Investment Management.
In an e-mailed response to questions, ORIX's Mr. Yamada said retention of key Robeco portfolio managers, with whom COO Mr. Inoue already has conducted separate meetings, is the most important issue, and “we will respond flexibly in regards to incentive plans.”
Room for "other steps'
Over the longer term, market veterans say, ORIX might prove to be a relatively supportive parent.
Robeco would be ORIX's largest acquisition, but CEO Mr. Miyauchi made it clear that his company's balance sheet still has room “to take other steps,” whether in asset management or its other business lines, noted Mr. Munsters.
And the coming years could prove an opportunity-rich environment, Mr. Munsters suggested. There are no specific plans, but the asset management industry globally shows no signs of “settling down,” and Robeco could have a role to play as the pace of buying and selling firms picks up, he said.
Investment bankers said it's unclear whether Rabobank or any other European bank would be able to take full advantage of that environment in light of the eurozone's current economic distress.
Banks in continental Europe remain under growing pressure from regulators to streamline their businesses, so executives have to consider whether they can provide sufficient support to asset management affiliates to ensure they don't fall behind competitively, noted Janis Vitols, a New York-based managing director and investment banker with Barclays, who advised Rabobank on the deal with ORIX.
The Feb. 19 news release simply noted that “Rabobank decided to sell Robeco to ORIX, on the basis that becoming part of ORIX Group will enhance Robeco's future growth prospects.” Rabobank spokesman Hendrik Jan Eijpe didn't respond to requests for elaboration.
In an interview, Mr. Vitols said the Robeco deal isn't in keeping with the big trends that have driven money manager M&A since the global financial crisis, such as consolidation. It's more of a “realignment of players in the industry,” which could find other banks in Europe weighing whether they're the right owners of asset management businesses, he noted.
Could provide momentum
After recent failed auctions for the asset management businesses of Deutsche Bank and Unicredito, some investment bankers said the ORIX-Rabobank deal could provide momentum for further divestments on the Continent.
But others note that Robeco has some jewels in its crown that other money management affiliates coming to market recently lack, such as fast-growing Harbor Capital, which has surged to $72.7 billion in assets now from $17 billion when Robeco bought the firm in 2001, and Transtrend. Over the past year, those two firms, with roughly one-third of Robeco's AUM, accounted for two-thirds of its earnings before interest, taxes, depreciation and amortization.
Meanwhile, the €1.935 billion purchase price stands at seven times Robeco's EBITDA of roughly €310 million for the past year — leaving some bankers noting that even a relatively attractive property such as Robeco was sold for well under industry norms of closer to 10 times EBITDA.
The deal was interesting because ORIX was able to “leverage the competitive dynamics to get a good price that ... mitigates the risk of an investment thesis predicated to some extent on a plug-and-play into their own country,” said one banker, who declined to be named.
But the €1.935 billion headline figure doesn't account for either earn-outs ORIX will pay Rabobank over the next three years if Robeco's business hits specified targets, or the value of Robeco Direct, a banking business within Robeco that will be transferred to Rabobank. The last annual report for Robeco Direct, through Dec. 31, 2011, valued that business at roughly €420 million.
Mr. Munsters deferred questions about the full price to ORIX and Rabobank. Spokesmen for both firms declined to comment.
This article originally appeared in the March 4, 2013 print issue as, "ORIX enters big leagues with acquisition of Robeco".