Jupiter Fund Management’s acquisition of rival manager Merian Global Investors is expected to result in a streamlining of funds across the combined entity’s UK, European and Asian equity products, according to fund buyers.
On Monday the FTSE 250 manager confirmed reports over the weekend that it would be acquiring Merian in a deal worth £370m paid through the issue of new shares to Merian shareholders.
Merian’s main shareholders will also be entitled to an additional £20m as part of a deferred earn-out, subject to certain conditions being met.
The deal, which will also see Jupiter take on £29m of Merian’s debt, will create a combined group with £65bn assets under management.
Merian shareholders will own approximately 17% of the enlarged share capital of Jupiter. Private equity firm TA Associates will assume a 16% stake, leaving 1% for Merian management.
The £390m equity offer is considerably below the £600m TA Associates paid to spin out Merian less than two years ago, in a deal led by Richard Buxton. It is understood, however, that the deal to take Merian out of Old Mutual involved an undisclosed amount of debt so it is difficult to make a like for like comparison with the price Jupiter paid.
TA Associates also has history with Jupiter having backed the firm’s management buyout from Commerzbank in 2007.
Jupiter chief executive Andrew Formica (pictured) said: “This is an exciting acquisition that enhances our position as a leading UK asset manager, provides increased scale and diversification into attractive product areas, and creates stronger future growth prospects for the business.”
Overlap at fund level
Fairview Investing investment consultant Ben Yearsley expected there to be overlap at both a fund level and within sales and marketing, which could result in mergers and closures once the deal is complete.
“The pressure to drive down costs is evident, and scale is one of the ways to do that. For Jupiter to become more relevant one of the key things will be to ensure that any deal synergies don’t just pass to shareholders but also through to investors through lower fund fees and better performance.”
In December, Merian announced job losses as a result of tough market conditions. It would not be drawn on specific individuals or roles affected when asked by Portfolio Adviser.
AJ Bell head of active portfolios Ryan Hughes said the past 18 months have been tough for both businesses with assets following Darwall out the door at Jupiter and Merian seeing its Global Equity Absolute Return fund shrink significantly following weak performance.
“This potential deal would bring significant economies of scale and the potential for the enlarged business to streamline its product range with overlap and sub-scale funds across both fund ranges, particularly in UK, European and Asian equities.
“Should this deal go through, it would continue the recent trend of active managers merging to try drive cost savings through their businesses to take the fight back to passive managers who are making inroads in the market and attacking asset managers revenues.”
But Morningstar director manager research ratings, UK, Jonathan Miller said: “In terms of investment teams there is little overlap so this is fairly complementary from that point of view. Still, the deal is symptomatic of the pressure active managers are finding themselves under.”
Follows tough year for both groups
Merian reported AUM of £22.4bn at the end of 2019, a year in which it lost £7bn of assets. Throughout 2019, the Merian Global Equity Absolute Return Strategies (Gears) fund went from £9.6bn to £2.7bn, according to Morningstar flows data.
Jupiter, which has £42.8bn AUM, suffered from fund performance and the loss of European equities manager Alexander Darwall. James Clunie’s Absolute Return fund has suffered a long run of underperformance and lost £299m in 2019, going from £1.53bn to £1.16bn, according to Morningstar flows data. Jupiter decided last week to liquidate Clunie’s Jupiter Global Levered Absolute Return fund.
Square Mile said it has decided not to change the ratings of either the Merian or the Jupiter funds. “For now we do not believe that there will be any changes to way in which they are managed,” it said in a note.
Square Mile investment research analyst Daniel Pereira said: “Both firms are advocates of active management and such acquisitions can generally lead to a lot of cost savings in various areas. As per this announcement, Square Mile have made no changes to our ratings of either the Jupiter or Merian funds. We will of course keep our clients updated should our views change.”
‘Signature Andrew Formica footprint’
A Citi analyst note said the transaction has a “signature Andrew Formica imprint of M&A driven growth”. It added Merian appears a good fit to Jupiter, given similar strategies of active management and UK focus, but said dividend risk remains.
“While a departure from its ‘small and nimble’ strategy, this is not unexpected as some investors have long argued that the current CEO might focus on inorganic growth.”
According to JP Morgan Cazenove analysts, the combined business will comprise 89% retail investors and 11% institutional. By asset class, equities represent 57%, fixed income 20%, multi-asset 14% and alternatives 9%.
