Analysts and deal experts who have watched Invesco Ltd.'s share price fall 7.6% since it announced it was acquiring OppenheimerFunds Inc. are unsure whether the tie-up will pay off for the money manager, given the $5.7 billion price tag.
Despite the headwinds facing traditional managers, Atlanta-based Invesco is in essence "doubling down on active management" and increasing its exposure to the challenges that come with it, said Donald Putnam, managing partner at investment banking firm Grail Partners LLC, San Francisco.
"I agree with people who are skeptical (of the deal) and worried about the share price," he said.
Historically, asset manager M&A deals have been aimed at filling product line voids so the combined company broadens capabilities across asset classes. On the Invesco-OppenheimerFunds deal, Mr. Putnam said it was "a little too soon to declare this a mistake, but it is certainly a challenge."
Invesco is also positioning itself to reap the benefits of the combination, which shouldn't be overlooked, he noted.
"The challenges of active management are very well known, and 95% of the (firms) who are in active management are either taking no action to face the ongoing crisis, or they are actively denying that this challenge exists. They are waiting for active management to come back in favor."
While it will take time to see if Invesco's wager pays off, management is at least "trying to confront and solve the problem rather than live through it," Mr. Putnam added.
In October, Invesco announced that it would pay $5.7 billion in stock for Massachusetts Mutual Life Insurance Co.'s OppenheimerFunds unit. The deal, expected to close at the end of the second quarter, is set to make Invesco the 13th largest global investment manager and the sixth largest retail investment manager in the U.S. with $1.2 trillion in combined AUM, the company announced at the time.
As of Dec. 31, nearly a quarter of Invesco's total AUM was in passive strategies, with active investments accounting for the remainder of assets, according to its fourth-quarter earnings release.
At New York-based OppenheimerFunds, a predominant portion of its $250 billion in AUM was actively managed, an October presentation from Invesco showed.