MutualFundWire.com: Is Virtus Taking an M&A Break?
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Wednesday, May 02, 2018

Is Virtus Taking an M&A Break?


As a publicly traded, multiboutique asset manager prepares to digest one acquisition, its chief is keeping his eyes open for more deals. Yet more M&A isn't a necessity, he says.

"Our plan for long-term growth is not dependent upon M&A," George Aylward, CEO of Virtus Investments Partners [profile], told analysts on Virtus' Q1 2018 earnings call on Friday, as transcribed by Seeking Alpha. "[We] haven't been [building] our long-term strategy on the premise that we need to continually do M&A and expand the business that way."

Aylward was responding to a question from Michael Cyprys, executive director of equity research at Morgan Stanley, about Virtus' M&A plans after digesting Sustainable Growth Advisers (SGA). In February Virtus unveiled a deal to buy a majority stake in Stamford, Connecticut-based SGA, buying out private equity firm Estancia Capital Partners' three-year-old stake and partly buying out SGA's partners. On the call on Friday Aylward said that the deal is still on track to close mid-year.

Later on in the earnings call, Jefferies equity research analyst Surinder Thind returned to the M&A subject, wondering if Aylward should reverse his priorities and put M&A ahead of organic growth as the primary focus for Hartford, Connecticut-based Virtus (VRTS on the Nasdaq).

"Obviously, you want to invest as much you can to get organic growth, but if the industry is — there's a lot of headwinds out there, why not be more aggressive with M&A?" Thind asked.

"We absolutely participate and look for any opportunities that are out there ... So we're not saying we wouldn't look at those," Aylward responded. "If the right thing comes along, we certainly will always consider it."

On Friday, Virtus reported Q1 2018 adjusted earnings per share of $2.59 and revenue of $129.03 million, beating analysts' estimates by $0.12 per share and $780,000, respectively. As of March 31, 2018, Virtus had $89.1 billion in AUM, up 86 percent year-over-year (in part thanks to buying RidgeWorth last June) but down two percent from Q4 2017. Virtus suffered $700,000 in net outflows in Q1 2018, down from $800,000 net outflows in Q4 2017 and $500,000 in net inflows in Q1 2017.

Jordan Friedlander, Ari Ghosh, and Craig Siegenthaler of Credit Suisse reiterated their "outperform" rating for Virtus, calling the firm one of their "top traditional longs," an "undervalued puzzle." Thind, Daniel Fannon, Gerald O'Hara, and James Steele of Jefferies rated Virtus a "hold" in response to its Q1 results.


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