Robeco Group, a big Dutch financial services company, has agreed to acquire about 40% of Houston fixed-income manager Smith, Graham & Co. Asset Managers L.P.
Neither side would reveal the price. But Perrin Long, president of Perrin Long Inc., a Darien, Conn., a financial services analysis and consulting firm, estimated Robeco is paying between $2 million and $5 million.
As part of the deal, the firms will form SGR Global Advisors, a joint venture that will provide global and international fixed-income management in the United States. SGR Global will begin operations in June, seeded with $200 million under management to be outsourced by Robeco to the new firm. Robeco, in turn, will offer Smith Graham products to European investors.
The Smith Graham deal represents the first step by the Dutch asset management firm to establish itself as a major player in the U.S. money management industry, according to Ruud Hendriks, managing director-international at Robeco.
Mr. Hendriks said Robeco wants to make a similar deal with a U.S. equity manager during the next two years. He declined specifics, but said Robeco is in discussions with "other companies" on the equity side. "We have big plans for the U.S. market," he said.
As with Smith Graham, the type of deal will depend on the quality of management and the client base, he said.
Robeco isn't interested in big managers: "Size isn't an important criteria."
Before settling on Smith Graham as its first U.S. partner, Mr. Hendriks said Robeco executives held informal discussions with several larger bond managers. They decided Robeco could not add value if the deal were with a large company.
Smith Graham, a minority-owned investment management company, has about $2 billion under management on behalf of 37 institutional clients.
The Robeco Group is based in Rotterdam and manages more than $45 billion in global and international fixed income, equity and real estate. Its only exposure to the U.S. institutional market is in its extensive real estate holdings.
Under terms of the agreement, Edward van Wijk, a senior portfolio manager with Robeco, will relocate to Houston to serve as chief investment officer at SGR Global Advisors. Gerald B. Smith, chairman and chief executive officer of Smith Graham will serve as an advisory member of Robeco's investment management group and will serve on the board of Robeco's fixed-income management group.
Ladell Graham, the firm's other co-founder, will continue as chief investment officer at Smith Graham; he'll become an advisory member of the SGR investment policy committee.
Each firm will maintain separate marketing and support staff.
Mr. Smith said the deal is expected to close by May.
He said Smith Graham had been seeking a global capability for many months, either through an acquisition or joint venture. Executives decided to accept the Robeco offer based on the Dutch firm's commitment to Smith Graham's continued growth.
Asked why Robeco selected Smith Graham from among the broad universe of potential partners, Mr. Smith said: "They saw we are in for the long haul and have no interest in selling a majority of our firm. They wanted a partner committed to the business for the long term."
Mr. Smith said the deal will not just allow Smith Graham to offer more products. It also will "enhance the performance of our domestic portfolios by having a broader scope of global quantitative and qualitative services."
He said he expects the Smith Graham-Robeco deal to succeed where others have failed.
Mr. Smith noted some unsuccessful joint ventures were simply marketing arrangements. "There was no business plan development and no exchange of equity, no synergy between the firms as there will be here," he said.
The deal was engineered by Investment Counseling Inc., West Conshohocken, Pa. Berkshire Capital Corp., New York, was adviser to Robeco during the negotiations.
Richard Foote, principal at Berkshire, said Robeco was attracted to Smith Graham because Smith Graham "has an outstanding track record and has grown from nothing to over $2 billion in just five years." Mr. Foote also said Robeco executives have "great admiration and respect" for the principals' management skills, and like the firm's client base. Among Smith Graham's clients: Honda of America Manufacturing Inc., Marysville, Ohio; Denver Employees Retirement Plan; City of Austin (Texas) Police Retirement System; Public School Teachers' Pension and Retirement Fund of Chicago; Los Angeles Fire and Police Pension System; Cincinnati Retirement System; Texas A&M University Endowment in College Station; and Hermann Hospital, Houston.
Why not some other, more high-profile firm? "This is the right size for them," said Mr. Foote. "It's their first beachhead in the U.S. market and they are cautious by nature. They are not the kind of company who would write a $100 million to $150 million check."
Perrin Long's Mr. Long said Robeco's motive was clear. "Robeco is very strong in Europe. Now it is apparent that they are trying to gain an entrance into the U.S. This is an opportunity for them to see how things operate in the U.S.," Mr. Long said.
Paul Schaeffer, partner at Investment Counseling, said Robeco executives had a "targeted strategy" and were "looking for a strong company where they could have an impact and a firm which had a strong base in the U.S."