Canada’s Bank of Montreal could face competition in its pursuit of UK fund house F&C Asset Management, despite shareholders being advised to accept the deal.
BMO on Tuesday reached an agreement with F&C, which traces its history back to the formation of Foreign & Colonial Government in 1868, to acquire the UK group for £700m in a 120p in cash per share offer.
Despite recent management and shareholder upheaval at the listed UK fund company, which went through three different chief executives in 2012 alone, analysts believe BMO could face competition from other interested parties.
Ray Soudah, chief executive of Millenium Associates, a Swiss merger and acquisition consultancy, believes counter offers are likely while F&C seeks shareholder approval for the deal over the next four weeks.
He said: “F&C is a listed company so many people have examined it and there are likely to be many interested parties. There is no reason why BMO should not be successful, but it should not rule out other buyers coming to the table.”
A former senior employee at F&C agrees that the UK investment house, which launched the world’s first collective investment vehicle, would attract more bidders. “Others are bound to come out of the woodwork,” he says.
Indeed, Standard Life Investments, the second-biggest shareholder in F&C, with a 10 per cent stake, on Tuesday said that it was open to considering rival bids.
David Cumming, global head of equities at Standard Life, said: “The price agreed represents an attractive valuation from the standpoint of the Canadian Bank. Consequently we intend to keep our options open should another suitor for F&C emerge.”
There are several large US fund companies that would like to increase their presence in Europe’s asset management industry, as well as big private equity groups looking to expand into fund management for the first time, according to Mr Soudah. He believes BMO may consequently be forced to improve its offer.
Diana Mackay, chief executive of Mackay Williams, a fund research company, agreed that “there may be some private equity houses hungry and interested”.
Private equity interest in asset management companies helped fuel a spike in M&A activity in the fund sector last year, with big names such as Warburg Pincus, Blackstone and KKR homing in on acquisition targets.
However, Ms Mackay added that F&C, which has suffered two consecutive years of outflows from European investors, has “been in a bit of limbo” following a boardroom coup in 2011 that led activist investor Edward Bramson to oust former chief executive Alain Grisay in May 2012.
Mr Bramson stepped down as chief executive six months later in favour of a non-executive chairman role at the fund house, and was replaced by F&C veteran Richard Wilson. As a result of this upheaval, the fund house has dropped off the radar of Europe’s biggest fund selectors, according to Ms Mackay.
Millenium’s Mr Soudah also acknowledged that F&C has experienced a tough period recently, but he believes this is unlikely to deter potential buyers.
He says: “F&C has experienced a lot of shareholder activism and management changes in the past two years, which is never good for asset management companies. But the company has a good brand and the capacity to grow to be much larger than what it is.”
Amin Rajan, chief executive of Create Research, a fund consultancy, recognises this point. He believes F&C could now revive its fortunes following a fall from grace that has seen assets under management decline from £120bn in 2004, when a three-way merger propelled it to become Britain’s fourth-biggest investment house.
He said: “F&C has long punched below its weight. It will finally have the much-needed clout from BMO’s distribution reach.”
F&C currently manages £80bn of assets, down from £92bn at the end of June.
Four strategic partners, all pension funds, account for about 60 per cent of assets but several of these partners, including Friends Life, have pulled significant mandates from the fund house in recent months. The company revealed in March that Friends Life would withdraw mandates worth £6.2bn in the first half of the year, while Achmea, for which it manages £25bn in assets, will pull out £10.3bn in mandates at the end of an exclusivity period in October.
Mr Soudah believes that F&C can easily regain its asset base of more than £100bn and perhaps double assets under management with commitment from a suitable backer.
Dan Werner, an equity analyst at Morningstar, the data provider, added: “[F&C] could appeal to other asset managers seeking or solidifying their presence in the UK or Europe. However, the recent restructuring and the modest price being paid tells me that interest to acquire F&C is likely tepid.”
Nonetheless Mr Werner believes the acquisition “makes sense” for BMO as many Canadian banks have already expanded their asset and wealth management businesses in the last three years.
This is due to the “the stability of the fee revenue [fund businesses] generate in light of slowing loan growth domestically, along with tighter margins in [retail] and commercial banking businesses”, he said.
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