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Thursday, September 28, 2017

Will Another Japanese Giant Buy Into U.S. Asset Management?

News summary by MFWire's editors

Another Japanese giant may soon buy into the U.S. mutual fund business, this time on the West Coast.

Nippon Life Insurance is in talks to buy a 20 to 30 percent stake in Los Angeles-based TCW from Carlye Group, Nikkei Asian Review, Pensions & Investments, and Reuters all report. And the Wall Street Journal reports that the bidders also include Mitsubishi UFJ Financial Group.

Earlier this year Japan Times reported that Nippon Life president Yoshinobu Tsutsui is specifically interested in acquiring U.S. asset managers and life insurers.

The TCW deal price tag could rang from 50 billion to 100 billion yen, according to Nikkei, which translates to between $444 million and $888 million. For a 20 to 30 percent stake, that implies an overall valuation of TCW of between $1.48 billion ($444 million for a 30 percent stake) and $4.44 billion ($888 million for a 20 percent stake). TCW, which is known for fixed income investing, had $196.7 billion in AUM as of June 30, so the rumored price range values the company at between 0.75 and 2.26 percent of AUM.

Private equity giant Carlyle, through a pair of its funds, bought about 60 percent of TCW four years ago, leaving about 40 percent in the hands of TCW management. The terms of that deal were not disclosed, though reports since then have pegged the price tag at about $700 million. Thus, the rumored Japanese deal now would entail Carlyle selling between one-third and one-half of its stake and would turn TCW's management into the company's biggest shareholder block. The WSJ notes that, thanks to their big stake, management would have a say in any deal and that, despite longrunning IPO rumors, management has "resisted a potential initial public offering." TCW is currently led by president and CEO David Lippman and chairman Marc Stern.

Sale rumors, partial or complete, should not be a surprise. Carlyle is a financial backer, and private equity firms typically don't hold their investments for too long if they have a choice, with seven years often being the theoretical maximum. Conventional wisdom is that private equity-backed companies are, to some extent, usually always for sale, passively if not actively.

Regarding TCW in particular, MFWire heard rumors as recently as this summer that Carlyle has had TCW on the block for some time. A source familiar with the situation claimed that management wants TCW to remain independent and that they have "nixed the idea of being consolidated into another company," which lent more credence to the IPO option. Yet there's no real pressure to sell, that source said, except from Carlyle.

"[TCW management is] not hurting for money," that source told MFWire. "What they care about is autonomy."

If a deal goes down, TCW would not be the only big U.S. fund firm with a sizable minority stake held by a Japanese giant. Last year Nomura bought 41 percent of American Century. 

Edited by: Neil Anderson, Managing Editor


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