Amid speculation that Invesco Ltd. and Janus Henderson Group PLC could pursue a tie-up as a result of activist investor pressure, there is a healthy dose of skepticism among analysts and M&A experts about whether such a deal would significantly benefit the firms.
The rumors of a merger come as there has been continued scrutiny of the industry's largest money manager tie-ups, including whether such combinations have ultimately strengthened companies.
On Oct. 2, activist hedge fund Trian Fund Management LP said in SEC filings it had taken 9.9% stakes in Janus Henderson and Invesco and may encourage the firms to individually explore "strategic combinations" with "one or more companies in the asset management industry" — wording that sparked speculation that the firms could merge together and create a firm with almost $1.5 trillion in assets under management.
Neal Epstein, vice president, senior credit officer at Moody's Investors Service, New York, said in an interview that the SEC filings hinted that Trian may see Invesco and Janus Henderson as "potential partners" and that the firm was "talking to each company separately about merging with companies in which (Trian) already has taken positions in," or may in the future.
"That sort of suggests they are interested in pushing the companies together," Mr. Epstein added.
A spokeswoman at Trian declined to comment beyond the SEC filings.
Of note, Trian took a 4.5% stake in Legg Mason Inc. less than a year before it was announced in February the firm would be acquired by Franklin Resources Inc. in a $4.5 billion deal.
If a deal between Invesco and Janus Henderson were on the table, Mr. Epstein said that he believes Invesco "could conceivably absorb Janus Henderson," although that the combination is not a "natural association" he would make.
Invesco has already "done some large deals and their balance sheet is already a little stretched," Mr. Epstein said, noting the firm's 2019 acquisition of OppenheimerFunds for $5.7 billion.
Donald H. Putnam, a managing partner at Grail Partners, San Francisco, said in an email that there is "certainly potential for consolidation in the industry, and over time (Invesco and Janus Henderson) might make a half-decent match, but the timing is not great on either side this year."
"At Invesco, the very high price and costs of the Oppenheimer acquisition continue to drag on the balance sheet and earnings of the company. Paying a public company premium and launching another bruising integration is not easy to contemplate," he wrote.
Invesco had $1.15 trillion and Janus Henderson had $336.7 billion in AUM as of June 30.
"Consolidation is hard to implement when both firms are trading under the market, and the integration is likely to be long and fraught," Mr. Putnam added.
Moody's Mr. Epstein added that he doesn't see the firms' client or product mixes being as complementary as Franklin Templeton's acquisition of Legg Mason or Invesco's purchase of OppenheimerFunds.
"(A combination) would push Invesco to be more of a U.S. retail firm and that's the area of the industry that is under the greatest stress. Traditional (active) funds have been supplanted by passive products and both firms have had outflows in assets under management," Mr. Epstein said.
Of Invesco's $1.15 trillion in total AUM, $863.5 billion was actively managed assets as of June 30. Some $788.4 billion of its total AUM was in retail strategies and $829.8 billion was with clients in the Americas, the firm reported in its second-quarter earnings. Janus Henderson is an active manager with more than half of its total AUM, $187.6 billion, with North America clients, the firm reported in its second-quarter earnings.
As of June 30, around a third of both Invesco and Janus Henderson's businesses were institutional AUM, Mr. Epstein also noted.
Catherine Seifert, a vice president and equity analyst at CFRA Research, New York, also pointed to secular challenges in the industry that would still impact a combined Invesco-Janus Henderson.
"Activism is not going to remove the fact that there is a secular change in the asset management space — and that is a shift away from active equity strategies to passive investment management. While activism is going to force companies to be more proactive in dealing with this challenge, it doesn't remove the challenge," Ms. Seifert added.
In March, a Pensions & Investments analysis of the largest money manager combinations in recent years, including between Invesco and OppenheimerFunds, found that institutional assets represented a shrinking portion of firmwide AUM for firms that acquired other peers. Additionally, the analysis found that mergers did not stem or reverse bleeding at firms that suffered outflows before the deals. For example, in 2016, Henderson Group PLC and Janus Capital Group Inc. reported a combined $7.9 billion in net outflows prior to completion of their merger in May 2017. The combined firms had $10.2 billion in net outflows in 2017, $18.1 billion in net outflows in 2018 and $27.4 billion in net outflows in 2019.
Despite concerns about secular trends in asset management, Ms. Seifert said that she sees activism as a positive for Invesco and Janus Henderson, "because it injects a catalyst into these names."
At Invesco, in particular, "the presence of an activist has lit a fire under the firm and may accelerate some steps that may have already been underway," such as completing integration and costs savings plans related to previous acquisitions.
Ms. Seifert said that she is not sure, however, that Janus would be "the right firm," for Invesco to combine with.
"In the last five years, both firms have had net outflows in the majority of those years. Both firms have a lot of the same challenges, (such as) a lack of organic asset growth. I'm not sure how combining two firms with challenges is going to help those firms, other than by gaining economies of scale through some cost cutting, which may be something that Invesco is capable of doing on a stand-alone basis," she said.
An Invesco spokeswoman said in an emailed statement that the firm "welcomes high quality investors in our firm."
"We value shareholder input and engage with our major shareholders in a constructive dialogue aimed to strengthen our business. We are committed to being the most client-centric firm in the industry as we additionally focus on our employees and shareholders," the statement said.
A spokesman for Janus Henderson also declined to comment on market rumors or speculation, but said in an emailed statement that the firm regularly engages with and considers input from its shareholders, though it is the company's policy "not to comment on the specifics of discussions with individual shareholders."
"We continue to make significant progress to increase profitability, drive organic growth, and identify and deliver cost savings, and are committed to delivering meaningful value for shareholders," the statement said.