GAM once stood for Global Asset Management. The name was appropriate when the company was one of the largest in Europe. Today, the Swiss group is worth about SFr100mn ($112mn). That is with a bid on the table.
A name change could signal diminished status, or a reboot as an independent business. Investors led by French entrepreneur Xavier Niel would prefer that to a takeover by UK fund manager Liontrust. Niel’s grouping is promising to increase its stake above 10 per cent.
Subscale active fund managers are joining forces under pressure from index funds. Bulking up on the cheap makes sense for Liontrust. Paying with shares even more so.
The deal certainly appears to favour the bidder; Liontrust is offering a 12 per cent stake in the combined group but contributing just two-fifths of total assets. Liontrust’s offer is equal to about 0.4 per cent of GAM’s assets under management. That is about a third of Liontrust’s own valuation and even lower compared with the sector multiple.
GAM has drifted chaotically since scandalous involvement in the 2018 Greensill debacle. Operating losses widened to SFr42mn last year. Fund management assets of SFr23bn are down from SFr84bn in 2017. The board is poorly placed to demand better terms. This is why a fifth of GAM shareholders have already signed up. Fees show signs of stabilisation,
The bidder is unlikely to offer much more. Liontrust has arranged a loan to help complete the transaction, if it goes through. Cost-cutting assumptions are stretched. Liontrust hopes to achieve £57mn of recurring savings by spending £45mn. Typically, these would cost between £57mn and £86mn in asset management, noted David McCann at Numis. Job cuts in countries with strict employment laws make the job tougher. Targeted operating margins of 30 per cent will be tough to meet.
Asset management franchises are valuable for their ability to garner assets and talent. GAM lost both years ago. Unless a rival offer materialises, a Liontrust takeover is the least worst option.
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Article changed after publication to clarify purpose of Liontrust loan.
GAM/Liontrust: lowball offer exploits fund manager’s dire record
