Private equity investment firms are licking their chops over the good, cheap management buyouts on the market as the large acquirers of the late '90s divest their holdings.
Among recent deals:
* Rice, Hall, James & Associates, San Diego, bought itself back from Old Mutual's U.S. Asset Management Group;
* Northern Capital Management, Madison, Wis., bought itself back from Old Mutual;
* SEB Asset Management America, Stamford, Conn., did an MBO with European parent SEB Group, Stockholm;
* Martingale Asset Management, Boston, bought itself back from Commerzbank AG, Frankfurt;
* Berkshire Capital Management, San Francisco, bought itself back from London Pacific Group Ltd., London; and
Also, Parametric Portfolio Associates, Seattle, which acquired itself back from Allianz AG, Munich, in 2001 has been rumored to be on the market. Brian Langstraat, chief executive officer at Parametric, had no comment.
Poised to capitalize
Observers anticipate a busy 2003 as MBO activity is expected to increase during the next 12 to 18 months. They also expect to see recent MBOs, such as Parametric, back on the block. Private equity firms are poised to capitalize on this window of opportunity before large companies get back in the M&A game.
"The universe has changed," said Jeffrey Lovell, managing director at Putnam Lovell NBF Private Equity LLC, San Francisco, which assisted in the Berkshire deal. "Fewer financial institutions are committing new capital, which means better opportunities for private equity investors."
Putnam Lovell; Rosemont Partners LLC, Conshohocken, Pa.; TA Associates, Boston; Orca Bay Partners, Seattle; and Hellman & Friedman LLC, San Francisco; are on the short list of private equity firms that focus on the asset management industry.
Just a few years ago, private equity investors were priced out of the asset management industry, said Ray Soudah, founder of Millenium Associates AG, an investment banking firm with offices in Zurich and New York.
Now, private equity firms are well positioned to acquire minority stakes in good asset management firms at lower prices, he added.
"This is the most opportune time I've seen," said Chas Burkhart, founder of Rosemont Partners. "If you go down the list of the top 100 (asset management) firms, it's not hard to find firms with a fair amount of turmoil," said Mr. Burkhart. For private equity firms, that creates opportunity to invest in quality liftouts or buyouts. In February, Rosemont backed Rice, Hall, James' buyback.
Private equity investors and acquirers are on opposite ends of the spectrum, said Mr. Burkhart. "They (the MBOs) want investors, not buyers," said Mr. Burkhart, "partners, not owners."
For some firms, management buyouts represent a transition from one parent to another; for others, it's a chance to grow. Because private equity firms have exit strategies of three to seven years, there is some pressure on MBOs to grow and build assets. MBO firms have a window of opportunity in which they can build assets to sell to a third party or repurchase shares from investors and further develop their businesses.
One recent MBO, Boyd Watterson Asset Management LLC, Cleveland, sold itself to another parent company earlier this year. The firm, which bought itself back from Phoenix Investment Partners in 2000, was acquired by Mercantile Bankshares Corp., Baltimore, in January. Boyd Watterson is an institutional manager with $4 billion in assets.
Clyde Bartter, chief executive officer at Boyd Watterson, said the deal was too good to pass up. Mercantile gave them $1 billion in assets to subadvise, as well as the autonomy to run the business as it has the last three years, said Mr. Bartter. "When someone acquires you and nothing changes, and you gain 25% more assets, you can't say no," he said.