CORRECTED-UK's Henderson agrees U.S. fund buy costing up to $200 mln

Mon Jun 30, 2014 9:15am EDT

(Corrects target in second paragraph to 130 million pounds from 150 million)

* Deal worth an initial $130 mln, could rise to $200 mln

* Initial fee 2 pct of Geneva's $6.3 bln in assets

* Geneva a U.S. small-, midcap-focused equity house

By Simon Jessop

LONDON, June 30 (Reuters) - UK fund manager Henderson Global Investors has agreed the purchase of privately held Geneva Capital Management for as much as $200 million, its most important move yet in a strategy to expand in the United States.

The group had said earlier this year it was aiming to double its assets by 2018 to nearly 130 billion pounds ($221.2 billion) and set a top target of agreeing a deal in the United States, where it aimed to fill a big gap in its global presence.

Henderson will pay an initial $130 million for Milwaukee, Wisconsin-based Geneva, which has assets of $6.3 billion invested in U.S. small and mid-range companies, although that figure could rise to $200 million if certain targets are met.

"Developing our presence in North America is a strategic priority for Henderson," said Chief Executive Andrew Formica. Its U.S. operations have already almost doubled in size since 2011 and passed $10 billion in assets in May.

"The acquisition of Geneva is a major step towards achieving our growth ambitions as a global asset manager," Formica said. "It will increase our assets under management in the U.S. by over 50 percent, add investment management expertise in U.S. equities and extend our U.S. institutional client base."

Shares in Henderson, which rose to a peak of 275.4 pence earlier this year, were up 0.3 percent at 0952 GMT, in line with the broader FTSE 250 index of mid-range stocks.

The company's quest to grow its U.S. business had previously involved the hiring of a fixed-income team from another firm and the purchase of a stake in equity-focused North Pines, so the Geneva deal would be its biggest move so far.

The acquisition will also quadruple the amount of money Henderson invests on behalf of institutions such as pension funds, to leave its U.S. assets split more evenly with retail.

Other global buys included H3 Global Advisors, an Australia-based commodities fund manager, and a 33 pct stake in 90 West Asset Management, a natural resources equities manager, also based in Australia.

U.S. AMBITION

Phil Dobbin, an analyst at Espirito Santo Investment Bank, which acts as a market-maker in Henderson stock, said the initial deal fee for Geneva was 2 percent of assets under management (AUM) and 14 times post-tax earnings, "which does not appear to be unreasonable" by comparison with other deals in the sector.

"Strategically the deal makes sense, allowing Henderson to continue the build of its North American business which post-deal will represent (around) 15 percent of group AUM," Dobbin said in a note to clients.

Prior to the deal, Henderson's U.S. asset split was 83 percent retail, 17 percent institutional. Afterwards the split will be 58 percent and 42 percent respectively.

Henderson said the deal for Geneva, founded in 1987 and with a team of 25 including 11 investment professionals, would boost underlying earnings by a single-digit percent in the first full year after it was completed.

It would also generate returns above the cost of capital.

Analysts at JPMorgan said in a note to clients they expected the deal to be 4 percent beneficial to underlying earnings per share in 2015.

"We believe the deal is a good strategic fit for Henderson as it fills an important capability gap, materially extends the U.S. institutional client base and brings new expertise that should aid the growth of its broader US offering," the JPMorgan analysts said.

Transaction and integration costs associated with the deal, which should close in October, are seen around $10 million, most of which will be incurred in 2014, Henderson said. ($1 = 0.5877 British Pounds) (Editing by David Holmes)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.