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Urge to merge questioned

Friday, December 14th 2001, 7:03AM
Firms buying asset managers are paying too much for less profitable firms, and in most cases their new subsidiaries wind up growing more slowly than their peers, according to the latest report from international consulting group Cerulli.

In its latest report, Targeted Perspective: M&A in Global Asset Management, Cerulli examines asset-gathering strategies used by the largest practitioners in the global fund management industry, which oversees nearly US$34 trillion in assets under management.

The research’s particular focus is on more than 300 M&A transactions in fund management since 1990, including a proprietary analysis of more than 60 specific transactions to determine post-transaction asset under management growth rates.

Cerulli found that about 65% of the US target firms analysed failed to grow faster than the industry, in terms of assets under management, after a transaction. Even worse, roughly half of the firms that trailed industry benchmarks after the transaction were actually surpassing industry growth rates before they were bought.

In fact, acquisitions only transformed laggards into outperformers—ie: transformed their growth rates from below-median to above-median—in 11% of the cases.

Organic growth remains the only time-tested way to steadily grow an asset management firm, Cerulli says. The growth rates for organic-growth firms in the US for the seven years ending December 2000 is 20%, compared to 15% for the entire US industry.

Cerulli’s research yielded similar conclusions regarding British targets of fund management mergers and acquisitions.

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AMP Home Loans 6.49 5.69 6.29 6.40
AMP Home Loans $200k+ 6.39 5.59 5.99 6.30
AMP Home Loans LVR <80% - - 5.99 -
ANZ 5.99 5.85 6.49 6.85
ANZ LVR > 80 5.99 6.35 6.99 7.35
ANZ Special - - 5.95 -
ASB Bank 6.00 5.85 6.49 6.85
ASB Bank Special - - - -
BankDirect 6.00 5.85 6.49 6.85
BankDirect Special - - - -
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BNZ - Mortgage One 6.60 - - -
BNZ - Rapid Repay 6.19 - - -
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Credit Union Auckland 6.20 - - -
Credit Union Baywide 5.85 5.90 6.50 -
Credit Union North 6.45 - - -
Credit Union South 5.75 - - -
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Fidelity Life 5.70 5.40 6.00 -
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Housing NZ Corp 5.75 5.50 6.30 6.40
HSBC Premier 6.24 5.59 6.29 6.55
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HSBC Special - - 5.79 -
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Kiwibank 5.90 5.69 5.99 6.40
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