LONDON Schroders (SDR.L) has agreed to buy STW Fixed Income Management, as the 200-year old British wealth manager looks to gain a bigger foothold in the United States, the world's largest fund management industry.
Schroders, one of the least acquisitive of the larger UK asset management houses in recent times, said on Monday the deal to buy STW, which manages $11.9 billion, would increase its U.S. fixed income assets under management by 50 percent.
Schroders managed 202.8 billion pounds ($329 billion) in assets at September30, and the deal should increase its assets by 3 to 4 percent, according to RBC Capital Markets.
"We believe that the pricing of the transaction is competitive. Based upon our discussions with Schroders, STW had net income (profit after tax) of $5 million in 2011. We do not expect the transaction to have a material effect on our 2013 forecasts," RBC said in a note.
A number of European fund managers have tried to crack the U.S. funds market in recent years, but come up against tough local competitors such as BlackRock (BLK.N) and Fidelity whose well-known brands can dominate the market.
STW, founded in 1985 by William H. Williams, specializes in investment-grade assets. It is based in California but staff will relocate to Schroders' New York US fixed income operations.
Schroders has kept terms of the transaction confidential but fund managers are one of the toughest financial assets to attach a price tag to even in the strongest of markets.
Rule-of-thumb valuations range from 1.5 percent of assets for a low quality private wealth manager, to up to 10 percent of managed funds for a top-end alternative or hedge fund manager.
Large independent listed fund managers in the UK are currently trading at around 20 times earnings, according to calculations based on Thomson Reuters data, with Schroders showing a P/E of 16, Aberdeen (ADN.L) at 19.64 and Henderson (HGGH.L) at 20.48.
Schroders said it expects to complete the transaction in the first quarter of 2013.
(Reporting by Tommy Wilkes and Sinead Cruise)