Insurance companies and banks are on the prowl.
The two have shown they are very interested in buying investment management firms this year, said Don Putnam, managing director of Putnam, Lovell, de Guardiola & Thornton Inc., New York.
Six investment management deals were made in the first three months of the year, five of which were valued at less than $250 million, according to Putnam Lovell's preliminary data. Total deals are valued at more than $1 billion. Most of the buyers were other investment management companies.
However, insurers have been very active shoppers as well. For instance, officials at Nationwide Financial Services Inc. in Columbus, Ohio, said they would like to buy both a value equity and a growth equity money management shop.
American International Group Inc. just snapped up small-cap and midcap equity manager John McStay Investment Counsel in Dallas. McStay has about $4 billion in total assets. New York-based AIG paid an estimated $100 million.
A win-win deal
While that deal was a decent size transaction for McStay -- 2.5% of assets under management -- it was a relatively small deal for AIG, which laid down $18 billion Jan. 1 to purchase SunAmerica Inc., a Los Angeles insurer with a $3 billion mutual fund business.
Analysts portray the McStay purchase as a coup for both parties. McStay, which has about $800 million in mutual fund assets, needed a long-term mutual fund distribution channel and might have gained an international entree as well; AIG sought an institutional manager with strong performance to manage mutual fund, institutional and possibly insurance assets.
Another recent insurance buyer was Zurich-based Credit Suisse Group, which paid $650 million for Warburg Pincus Asset Management in February. New York-based Warburg has $23.5 billion in total assets under management.
The size of the selling firm will continue to have less impact on the price tag than the firm's investment performance and product capability, Mr. Putnam said.
Most of the sellers are smaller managers that recognize the need to team up with larger firms that are more adequately positioned, he said.
For example, fixed-income manager Fred Tattersall sold his firm to First Capital Group in February because he was concerned about future expansion.
Mr. Tattersall said he didn't enter the high-yield debt business several years ago when it began to be part of the new opportunistic style of fixed-income investing. Consequently, the firm found itself left out of many of today's pension fund bond searches.
First Capital, a division of Charlotte, N.C.-based First Union Corp., paid an estimated $70 million to $100 million for Tattersall Advisory Group, Richmond, Va.
Robert Watson said he sold his Norwalk, Conn., firm The Managers Funds in February when he determined he wasn't sure how to take it "to the next level." The Managers Funds has $1.7 billion in total assets under management. It is estimated Boston-based Affiliated Managers Group paid between $50 million and $80 million for the manager of managers.
AMG's purchase of The Managers Funds is one of the few holding company transactions so far this year. Liberty Financial Cos. Inc., Boston, backed out of its agreement to buy Societe Generale Asset Management in March after the SocGen funds suffered from enormous withdrawals prior to the close of the sale. Officials at United Asset Management Corp., Boston, said the firm intends to grow internally this year; Franklin Resources Inc., San Mateo, Calif., is battling emerging market losses and fund withdrawals; and Nvest LP of Boston has suffered withdrawals that led to disappointing earnings in the first quarter.
Not all strategic transactions have involved a complete sale of a firm. Nicholas-Applegate Capital Management LP, San Diego, sold only its retail mutual fund business to Pilgrim America Capital Corp. in February. Pilgrim paid $22.5 million for the business, which had $1.4 billion in total assets.
Critical mass needed
Art Nicholas said the fund business wasn't profitable without critical mass, which was possible only at the high cost of prolific marketing.
Nicholas-Applegate just last month sold its Houston-based fixed-income division, the former Criterion Investment Management, to a German bank for an estimated $100 million to $150 million. The unit has $9 billion in domestic fixed-income assets, primarily for institutional investors. (Pensions & Investments, May 3).
Not all money managers want to sell their firms to move ahead, according to a recent study by PricewaterhouseCoopers LLP, Boston. Interviews with 170 investment management executives worldwide revealed most small and mid-size firms plan to grow through internal expansion, joint ventures or alliances rather than by making acquisitions or selling themselves to larger players.
