Pace of Financial Firm Mergers Should Pick Up, Bankers Say

Money management mergers and acquisitions should pick up in the last few months after a slow start this year, investment bankers said.

So far this year, a total of $1.5 trillion worth of mergers of all types have been announced worldwide, and by the end of August, the amount should surpass last year’s record of $1.6 trillion.

Yet among money managers, last year’s biggest transactions were a lot more spectacular, with the top 10 worth about $11.6 billion. That compares with about $4.6 billion this year.

“There’s been a sharp decline of firms being sold,” said Sean Healey, executive vice president at Affiliated Managers Group Inc. “There’s no slackening of demand, but there’s less supply.”

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That’s changing. On Monday, Northwestern Mutual Life Insurance Co. said it would buy Frank Russell Co. for what analysts estimate is about $1.2 billion. If their numbers are right and the deal goes through, it would be the biggest transaction this year, ahead of Amvescap’s purchase of LGT Asset Management for $1 billion.

Trinity Investment Management, Zweig Cos., Robertson Stephens Investment Management, Kaufmann Fund and Iridian Asset Management are still on the block, and together would add at least $1 billion to this year’s total.

The next firm to go could be the Societe Generale U.S. mutual fund unit. The French bank is said to be in late stages of negotiations, and the transaction could be announced within a week, said Jean-Marie Eveillard, head of the U.S. unit. Analysts said the unit could fetch about $300 million.

The reason for this year’s comparatively slow start is that the largest properties were picked up in 1997. The prices, buyers are saying, are also high, given the quality of the firms now up for sale.

“Buyers are more circumspect these days,” said Charles Burkhart, president of Investment Counseling Inc., in West Conshohocken, Pa.

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This year, managers seem to be analyzing acquisitions more carefully.

United Asset Management Corp., which has been buying money managers for 18 years, sold its first manager last month, London-based Analytic-TSA International Inc., to North Carolina-based First Union Corp., the sixth-largest U.S. bank. UAM President Charles Haldeman said he now plans to be “more discriminating” in acquisitions.

Bankers, however, did not expect the slowdown, nor did they foresee that the current firms with for sale signs would take so long to unload.

That’s because money managers have been touted as the drivers behind such mergers as Morgan Stanley Group Inc.’s union with Dean Witter, Discover & Co. Some analysts expect Goldman Sachs Group will use some shares issued in the initial public offering its partners approved Monday to buy a money manager.

Surpassing last year’s total of merger activity would be difficult. In 1997, the 15 biggest purchases involved buying assets of $686.4 billion, and included giant deals such as Merrill Lynch & Co.’s purchase of Mercury Asset Management Group for $5 billion and Zurich Group’s acquisition of Scudder, Stevens & Clark for $1.48 billion.

So far this year, buyers have bought $266.3 billion in assets.

Purchases this year have also been usurped in part by initial public offerings. Two of the bigger transactions this year were the IPO of Federated Investors Inc., which raised $333.6 million, and that of Waddell & Reed Financial Inc., which raised $499 million.

The one hitch to more sales could be a drop in U.S. stock prices. Particularly market-sensitive are possible IPOs of Neuberger & Berman and Mario Gabelli’s Gabelli & Co., as such sellers might decide to hold out for a higher price when markets turn around.

“If we get single-digit returns in the market, that will be a big jolt to lots of people,” Burkhart said.