Jupiter faces the risk of following in the footsteps of the Standard Life Aberdeen merger as it confirms the completion of its acquisition of Merian Global Investors.
The FTSE 250 firm first announced its plans to acquire Merian on 17 February in a £370m deal that it said would result in a £65bn asset manager. But its combined assets had nosedived to £50.7bn by the end of Q1, less than six weeks later, as coronavirus rattled markets and Merian’s absolute return fund continued to suffer outflows and poor performance.
Shareholder approval for the deal was granted on 21 May, while a regulatory filing today confirmed the deal had completed.
‘Small bolt-on acquisitions tend to work better’
Fairview Investing consultant Ben Yearsley said he would be interested to see how the merger plays out. “Is it going to be another Aberdeen Standard? If you look at that, that’s been pretty destructive in terms of assets and value destruction.”
Standard Life Aberdeen announced its merged business would create an £11bn company with assets under management of £660bn, when the deal was first announced in March 2017. The company now has a market cap of £5.98bn and AUM of £544.6bn.
“I think generally asset manager mergers, when you’re trying to push two different teams together with two processes and big overlaps, just don’t work,” added Yearsley. “I think small bolt-on acquisitions tend to work better, where they buy a whole team or a small business and just leave it to run almost as a standalone business.”
Tilney managing director Jason Hollands was more positive on cultural fit between the companies noting their shared focus on active management.
“It will provide Jupiter with a broader range of investment capabilities and strengthen distribution. There will be significant cost synergies, which is pretty handy in the current environment as ultimately management have more control over costs than revenues, because the latter are so influenced by market levels,” said Hollands.
“Asset management integrations are not straightforward, as they are all about people and systems but Jupiter’s CEO is coming to this with the benefit of experience in this respect.”
Jupiter chief executive Andrew Formica (pictured) had been CEO of Henderson Global Investors when it merged with Janus Capital in 2017.
Yearsley agreed Janus Henderson had done a good job of retaining fund manager talent following its merger. “That’s probably because it’s an American firm that didn’t have much of a UK presence, whereas with Aberdeen Standard you were pushing two UK businesses together.”
What to make of lower AUM at the newly merged business
Yearsley added that the asset base was going to be lower than February “which is not ideal”. “The outlook is clearly different to when the deal was announced.”
The £370m price tag was a lot lower than the £583m deal when Richard Buxton led a management buy out, backed by private equity firm TA Associates, in June 2018.
While a Jupiter prospectus on the deal published earlier this week noted the Q1 AUM figures, it did not provide more recent figures on AUM. Instead it said AUM had improved since that period and flows had “stabilised and improved”.
But Hollands reckoned the deal did not look more expensive than when it was announced noting the transaction had clauses to adjust the purchase prices based on changes to AUM prior to completion.
Hollands added that the deal wasn’t primarily a cash acquisition with the consideration for Merian’s shareholders being in the form of shares in the enlarged Jupiter group. “These represent approximately 17% of the business, the current value of which has obviously adjusted with the market environment.”
Jupiter confirmed in its regulatory filing this morning that 95,360,825 new ordinary shares had been issued to the sellers of Merian.
