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Rating:Report: Asset Management M&A Focuses on Finding a Diamond in the Rough Not Rated 3.0 Email Routing List Email & Route  Print Print
Thursday, August 09, 2007

Report: Asset Management M&A Focuses on Finding a Diamond in the Rough

Reported by Erin Kello

A Putnam Lovell director sees more deals coming in the global asset management business.

In a report entitled, "The Long and Short of It," the management of the I-bank concludes that during the first half of 2007, M&A activity proceeded briskly in the asset management industry. Globally, there were 114 transactions in the sector, compared with 192 total transactions for all of 2006. Disclosed prices totaled $33.7 billion.

The report found that the going rate for U.S. asset managers surged in the second quarter to more than 14 times EBITA after stumbling slightly in the first quarter. Study authors assume that the high pricing anticipates that firms will improve earnings.

A recent deal between Rydex and Security Benefit would came in on the low end of this spectrum, with the final selling price said to be $775 million, about 11.5 times Rydex's $67 million EBITA.

Putnam Lovell directors conclude that buyers will remain active in the asset management industry.

"They (buyers) are looking for a diamond in the rough, a firm with sustained performance, growth added potential, and controlled asset growth, " Ben Phillips, managing director of strategic analysis at Putnam Lovell told the MFWire.

Private equity is expected to remain a big player in asset management buyouts, according to the report. Citing Private Equity Intelligence, the report points out that private equity funds had $250 billion raised but, unplaced as of the end of 2006, additionally those firms had already raised $240 billion in the first half of 2007. Fund shops are likely an attractive target for them.

"Private equity firms are looking for purchases with high cash flow, "Phillips said. "The latest liquidity crunch will likely only minimally effect fund shops," he added.  

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