BOSTON — Putnam Investments' new owner is expecting fast improvement in operating margins — a 40% increase in profitability this year, for instance — to justify the price.
Putnam was sold last week to the Great-West Lifeco Inc. subsidiary of Power Financial Group Inc., Montreal.
At $3.9 billion, the deal ranks as the most paid by a non-U.S. buyer for an American money manager and the sixth largest money management deal in history.
Still, sources said the price is not outrageous.
"I would say that Power is paying a very full price for Putnam, but it's not a stupid price," said Douglas P. Klassen, managing director at investment bank Cambridge International Partners Inc., New York.
"Ultimately, whether the price ends up being too high, a bargain, or just right depends on the success of Putnam's turnaround."
Investment bankers said Putnam remains a substantial investment manager despite a precipitous drop in assets, and they note its new owners appear convinced the firm can quickly and successfully execute a "margin improvement plan."
Officials at Power Financial and Great-West Lifeco said that after more than a month of deep due diligence, they are confident the staff of Putnam Investments is committed to, and capable of, improving operating margins from an approximate 17% now to the industry average of 30% this year.
"Power clearly trusts Putnam's management to turn the company around," said Ben Phillips, managing director of investment bank Putnam Lovell Securities NBF, New York. "As with other broker-sold mutual fund families, institutional inflows will be critical to Putnam's success. They need to be as competent in managing for these professional buyers as they are for retail mutual fund investors."