Cambridge President John Temple, based in New York, said a lot of attention was being focused on the U.S. market. Cambridge found the number of cross-border acquisitions of U.S. money managers doubled in 2014, to 16 with an aggregate value of $3.9 billion, from eight deals with an aggregate value of $630 million.
Mr. Temple said the reason was the U.S. economy was growing faster than in other countries, making U.S. money managers more attractive targets.
On a global basis, Mr. Temple said investment management transactions accounted for 1% of overall M&A activity in 2014, a sign the money management industry is recovering from the depths of the financial crisis, but still wasn't back to pre-crisis levels.
He said Cambridge research shows investment management transaction volume generally peaks at around 1.5% of total M&A activity in boom years and falls to as low as 0.5% in downturns.
Taking an optimistic view, Mr. Temple said, “Six years after the financial crisis, it is perhaps reassuring that the industry's transaction volume, at 1% of all M&A, is still signaling that the market upturn has further to run.”
For private equity firms, however, there was no more waiting for a full recovery — 2014 was a year of exits from investments made in money management firms for vintage year 2006 to 2008 funds.
Mr. Temple said Cambridge's M&A review found that private equity exits in 2014 “accounted for a remarkable (30%) of the year's global transaction volume, far exceeding new investments by private equity and in stark contrast to the last few years in which private equity has been a consistent net investor.”
The biggest deal of 2014 involved Chicago-based Madison Dearborn Partners LLC's sale of Nuveen Investments.
Madison Dearborn borrowed heavily as part of its leveraged buyout of Nuveen in 2007. The financial crisis hit and more than $4.3 billion of that debt needed to be refinanced in 2008, after borrowing costs soured.
Mr. Temple said it was interesting that the $6.25 billion enterprise value paid by Madison Dearborn Partners in 2007 was the same amount for which Nuveen was sold last year.
Sources said institutional investors who invested in the original deal received a small single-digit percentage profit.
“Given the unfortunate timing and high price of 16 times EBITDA paid in the original transaction, it can be counted as quite an achievement that investors reportedly exited with a small return,” Mr. Temple said.
He said the return came from Nuveen growing assets under management to $221 billion from $116 billion during the period and increasing earnings before interest, taxes, depreciation and amortization to $522 million from $387 million, not from the multiple received in the recent sale, which was down 25% at 12 times EBITDA.
As part of the deal, purchaser TIAA-CREF agreed to assume $4.5 billion in debt.
“In general, private equity last year was happy just to recover its money on 2006-2008 vintage fund investments, many of which have struggled to reach pre-crisis asset levels,” Mr. Temple said.
Also among those deals was American Beacon Advisors Inc., which was acquired in 2008 by TPG Capital and Pharos Capital Group LLC and sold to Estancia Capital Management LLC and Kelso & Co. in 2014. Mr. Temple said American Beacon's AUM in November was $57 billion, below the $62 billion held by the company when it was sold in 2008.
Another example is Asset Allocation & Management Co., Chicago, a fixed-income manager of insurance company assets. Mr. Temple said the company had $17.2 billion in assets under management when it was purchased in 2007 by private equity firm Stone Point Capital. The money manager reported $16.4 billion in AUM in November when its sale to Securian Financial Group was announced.
The purchase prices of the two private equity deals were not disclosed, but the lack of asset growth would have depressed the price, Mr. Temple said.