Australia’s largest investment bank Macquarie Group has agreed to buy Waddell & Reed Financial for $US1.7 billion ($2.3 billion) to expand its US asset management business.
The offer values Waddell & Reed shares at $US25 a piece in cash, Macquarie said in a statement on Thursday, or about a 47 per cent premium to their latest closing price. The acquisition is expected to close by the middle of 2021.
After the deal is completed, Macquarie will sell Waddell & Reed’s wealth management business, which has about $US63 billion in assets under administration, to LPL Financial Holdings for about $US300 million.
That will leave Macquarie with Waddell & Reed’s asset management business, which oversees about $US68 billion in assets, primarily in equities. The move will lift Macquarie Asset Management’s assets to roughly $US465 billion.
The acquisition is Shemara Wikramanayake’s biggest move since she was appointed Macquarie’s chief executive officer two years ago. Investors have been watching for how she would deploy the bank’s $7.1 billion in surplus capital to boost profits, which have been smashed by the coronavirus pandemic.
“It’s a good deal,” said TS Lim, banking analyst at Bell Potter. Macquarie “always had a lot a of fire power and it’s probably a good time to expand, which probably tells you a bit more about the way they think about long-term value. It expands on their annuities-style business segment, so that gives you less volatility and more consistency in earnings.”
The US represents the largest client segment in asset management globally, and there is a trend toward the rationalisation of asset manager relationships, Macquarie said. The combined business will have increased scale and diversification of investment capabilities, making it more attractive to distribution partners, the bank said. Macquarie already has a presence in US asset management through Delaware Funds by Macquarie, which it bought from Lincoln Financial Group in 2010.
Asset management has seen a wave of consolidation in recent years, with firms responding to a squeeze on fees from cutthroat competition and a shift to passive fund management.
The pressure on small and medium-size asset managers comes from the very top of the industry, which is dominated by index-fund giants BlackRock and Vanguard Group. The high costs of technology and complying with regulations are also weighing on money managers.
Shares in Macquarie were little changed at the start of trading in Sydney on Thursday.
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