Administration January 8, 2000

THE URGE TO MERGE – Fund Acquirees Grow Slower

August 1, 2000 (PLANSPONSOR.com) - When money managers are acquired, plan sponsors may be voting with their feet, according to data from a survey conducted by Cerulli Associates. The study found that 2/3 of US managers involved in merger activity grew slower than the industry average, with a like number falling short of their pre-merger growth rates.
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Sixty percent of the 33 transactions involving acquisitions or mergers of US fund managers between 1988 and 1998, failed both tests.

Ben Phillips, managing director of Cerulli, told Bloomberg that a possible reason for the decline is the lack of incentive on the part of key executives to continue to grow the business.

According to Bloomberg, the Cerulli study examined the increase in assets at the companies that were purchased, rather than the asset growth of the combined firms. The study then compared annualized growth for the five years prior to the merger with the annualized growth rate between the time the merger was completed and the end of 1998.

Perhaps the most compelling evidence against mergers was that over various time periods ranging from a quarter-century to six years, companies not involved in acquisitions saw their assets grow more rapidly than the industry as a whole. 

The study found that over the past 25 years firms that depended solely on “organic” growth saw assets expand by 20%/year on average, compared with 16% for the industry overall.

In the past several months South Africa’s Old Mutual has agreed to acquire United Asset Management for $2.2 billion, France’s Caisse des Depots is buying Nvest LP for $2.2 billion and Italy’s Unicredito Italiano has said it will pay $1.2 billion for Pioneer Group Inc. for $1.2 billion.  Alliance Capital Management has agreed to buy fellow US manager Sanford C. Bernstein Inc. for $3.5 billion.