Federated Investors will acquire a majority stake in Hermes Investment Management from the BT Pension Scheme, London.
The two money managers said in a joint announcement Friday that Federated Investors had agreed to acquire a 60% interest in Hermes Fund Managers Ltd., which operates the environment, social and governance-focused money management firm. Hermes manages £33 billion ($46.2 billion) in assets. Through its Hermes Equity Ownership Services division, which provides engagement services, Hermes also advises on £336.1 billion in assets. Federated has $397.6 billion in assets under management.
Hermes will operate as a subsidiary of Federated Investors. The firm will continue to be headquartered in London, retaining its own board — chaired by an independent non-executive chair — and with representatives from Federated, BTPS and Hermes' executive leadership. It will also have two further independent non-executive directors. The announcement added that Hermes' people, processes, organizational structures and locations remain in place. A spokeswoman for Hermes confirmed that, upon completion, the firm will continue as Hermes Investment Management.
Upon closing, set for the second half of this year, Federated will pay £246 million to BTPS for the stake. Federated will fund the deal through a combination of cash and an existing revolving credit facility.
BTPS, which has £49.3 billion in assets, will retain a 29.5% share in Hermes, and will also remain a client of the firm. Certain members of Hermes' management will hold a total 10.5% interest in Hermes.
Over the three to six years following completion of the deal, Federated will have the opportunity to buy BTPS' remaining shares, the Hermes spokeswoman said.
Gordon J. Ceresino, president and CEO of Federated Investors (U.K.), said in a telephone interview that Hermes fits what U.S.-centric Federated had been looking for to expand its global footprint.
“There were three things: an executive management team that was deep, experienced and had a proven track-record and wanted to move forward and improve the business,” he said.
The second element was Hermes' “products and strategies,” the firm's desire to be “top performing, high alpha,” and that Hermes strategies were “complementary and not in competition with anything we did,” he said. Mr. Ceresino said there is little to no overlap.
“And the final piece is distribution footprint ... (we were) looking to marry with someone with a strong footprint in Europe and other parts of the world.”
Hermes CEO Saker Nusseibeh added that the firm has grown and made changes to become a third-party money manager. He said Hermes was looking for a partner that understands its growth story and focus on “holistic returns ... (being) pioneers of stewardship and ESG” and to help the firm grow further. “It is not about financial cost,” he said in the same interview. While Hermes has distribution business in Europe and Asia, it had “very limited access to the largest market there is — the U.S.”
He added that other potential suitors had U.S. businesses and distribution, but that Hermes and Federated Investors “share values ... this allows us to (focus on) future growth and is complementary,” is not about “cost cutting or synergies ... this is deeper,” said Mr. Nusseibeh.
The deal has been approved by Federated Investors' and BTPS' boards and is subject to agreed-upon conditions and approval by regulatory authorities in the U.K., Singapore and other jurisdictions.
The combined firm will have about $444 billion in assets under management. Federated's lead financial adviser was Citigroup Global Markets with additional representation from Barclays Capital. BTPS was represented by PricewaterhouseCoopers and Allen & Overy. Hermes was represented by Fenchurch Advisory Partners.