For $351MM, Federated Buys an ESG Shop
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Friday, April 13, 2018

For $351MM, Federated Buys an ESG Shop

A publicly traded asset manager based in the U.S. is about to buy a 35-year-old, active, ESG-focused shop across the pond.

This morning Chris Donahue, president and CEO of Federated Investors, confirms that his Pittsburgh-based shop has agreed to pay 246 million pounds ($350.88 million) to BT Pension Scheme for a 60-percent stake in London-based Hermes Investment Management. BT Pension Scheme (BTPS), a big corporate defined benefit (DB) plan in the UK, will keep a 29.5-percent stake in Hermes, and Hermes' management will hold the remaining 10.5 percent.

The Financial Times, Pensions & Investments, Reuters, and the Wall Street Journal all reported on the deal.

The deal announcement comes four months after reports that Federated and at least three other bidders — Challenger, Eaton Vance, and Old Mutual Asset Management (now called BrightSphere Investment Group) — were vying for Hermes.

The deal is expected to close in second half of this year, and Federated will have the option to buy more Hermes shares from BTPS over the next three to six years. Citigroup Global Markets advised Federated on the deal, with additional support from Barclays Capital. PwC and Allen and Overy advised BTPS, and Fenchurch Advisory Partners advised Hermes.

Hermes has about 33 billion pounds ($47.07 billion) in AUM, and another 336.1 billion pounds ($479.4 billion) in assets under advisement via its Hermes Equity Ownership Services (EOS). The $350.88-million price tag implies a valuation of $584.8 million for all of Hermes, which translates into about 1.24 percent of Hermes' AUM. Hermes offers 16 different active strategies across fixed income, equities, and private markets.

Federated had $397.6 billion in AUM as of December 31, 2017, so combined with Hermes it would have about $444.67 billion in AUM. Hermes will remain based in London, with its own board and independent non-executive chairman.

"The agreement with BTPS brings to Federated great people, a growing global client base, a history of strong performance and one of the world's leading active ESG investment and engagement businesses," Donahue states. "This is a growth opportunity for both Federated and Hermes, with Hermes' range of investment strategies serving as effective complements to Federated's existing strategies in equity, fixed income and cash management. In addition, Hermes' capabilities and client relationships in the U.K. the rest of Europe and the Asia-Pacific region significantly broaden Federated's distribution capabilities."

"Through this opportunity, the same Hermes investment and stewardship teams will remain dedicated to our investment philosophies in London, while our products and services gain greater exposure through the network of 8,500 financial intermediaries and institutions that already do business with Federated," states Saker Nusseibeh, CEO of Hermes.

Paul Spencer, chair of the BTPS Trustee, describes the deal as "the next step in the evolution of Hermes, as it continues to expand its global business."

"We look forward to working with Hermes and Federated in the years ahead and wish the business as it embarks on this next exciting chapter," Spencer states.

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