wners of fund firms may be facing up to another 36 months of depressed multiples. Donald Putnam
delivered the bad news to industry executives today at the Money Management Institute's
annual meeting in New York City. Putnam further noted that the multiples paid for asset managers has fallen some 30 percent so far during the bear market.
Putnam is the chairman and managing director of Putnam Lovell NBF Securities
. The firm is one of the leading consultants to money managers seeking to sell their business or raise funding.
"For our clients the outlook is grim," said Putnam. "It could be another 18 to 36 months before the multiples recover." He quickly pointed out that the market is not the worst he has seen in his career, though he believes that the current market for money managers may not have reached bottom. "This drop in market valuation is not as grim as in the Seventies," he noted.
The multiple of EBITDA paid to owners of money managers is down 30 percent, said Putnam. In private deals he is seeing multiples of 10 to 12 times EBITDA, down from 13 to 15 times EBITDA at the peak of the market. Public firms are going at an even steeper discount. "In those deals we are seeing a multiple in the high single digits," he said.
Not only are multiples shrinking, said Putnam, but also EBITDA itself is down at many firms. That means the bear market is taking a double whack at the price of those managers. "We think those prices will compress even further," Putnam added.
One impact of the falling prices being paid for asset managers may be an increase in the number of European firms seeking to divest US money managers. Putnam caught the audiences' attention by openly speculating that Germany's Allianz may be shopping Nicholas-Applegate. The firm has denied that the unit is for sale.
"Allianz has a market cap of about 17 billion Euros," noted Putnam. "At its peak it was valued at roughly 100 billion Euros." To Putnam, the dramatic drop in market cap means that the senior executives in Germany will want to focus on their core business rather than relatively small asset management arms in the United States.
Putnam thinks that there is a silver lining in the storm clouds. When money managers realize that there will be no quick turnaround in the market, they will buckle down on business and focus on building value through their products and their ethics, hypothesized Putnam.
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