Asset Management Multiples Rebound in 2010

Asset management M&A, which was hot in 2009, has remained somewhat dormant this year. But the sector is still ripe for PE investment since multiples have bounced back.

Several banks sold their asset management units in 2009 to raise cash and pay off TARP. Lincoln Financial sold Delaware Investments to Macquarie Group. Morgan Stanley sold its retail funds unit, including Van Kampen, to Invesco, while Columbia Management, which is owned by Bank of America, divested its long-term asset management unit to Ameriprise. Barclays also sold BGI to BlackRock in a mammoth $15.2 billion sale (the U.K. bank actually sold BGI to avoid taking their version of TARP).

And Guggenheim Partners bought Claymore Securities last year and is close to finishing its buy of Rydex/SGI.

Despite the flurry, this year has not seen much activity. One strategic investor said the lull is due to firms digesting their acquisitions.

There are signs of life. SunTrust Banks, which is trying to pay off $4.9 billion in TARP, is selling RidgeWorth Investments. But that deal has been going on for forever and ever (actually since last summer). Henderson Group, a U.K. investment manager, confirmed in April that it was in talks to buy some units of RidgeWorth.

Sun Trust did not return calls for comment.

Vanguard, the fund firm, may be getting into the mix. Earlier this year, Vanguard, which rarely does acquisitions, completed a $600 million private placement. The firm is looking to buy an asset manager outside the U.S.

Another deal comes from UniCredit Group, the Italian bank, which in May put its Pioneer Global Asset Management on the block. Bank of America is advising. Private equity is expected to be lead contenders to buy Pioneer, which has $250 million in assets under management globally (including $62 billion in the U.S.). Bain Capital, Carlyle Group, Hellman & Friedman and TA Associates are expected to be interested.

Multiples for asset managers have rebounded along with the broad market this year. In 2009, asset management businesses were selling for as low as six to eight times EBITDA. This year, asset managers are selling for eight to 10 times EBITDA, one private equity executive said.

Basically, asset management valuations are driven by what happens in the capital markets. When the equity markets do well, then a firm’s assets under management go up which leads to higher management fees and more profit, the executive said. “When there is a better prospect for higher management fees, when markets are strong, the multiples go up,” the source said. “The inverse is true as well.”