Man Group plc (EMG) - Acquisition of FRM
RNS Number : 7298D
Man Group plc
21 May 2012
21 May 2012
Man to acquire FRM
Man Group plc ("Man") has agreed to acquire the entire issued share capital of
FRM Holdings Limited (Financial Risk Management "FRM"), a global hedge fund
research and investment specialist with funds under management of
approximately $8.0 billion^1 (the "Acquisition"). Man will integrate FRM with
its multi-manager business and, through combined resources and scale, will aim
to offer clients deeper and more diverse capabilities, increasingly compelling
products and services and better investment performance.
^1 Source: FRM estimates based on latest information available prior to the
date of this announcement.
No consideration will be paid up front, with contingent consideration
dependent on asset retention.
The Acquisition will involve a scheme of arrangement under Jersey law and is
also subject to the satisfaction or waiver of customary conditions (including
receipt of regulatory approvals including from the FSA). It is expected to be
completed before the end of Q3 2012.
· Man and FRM's combined multi-manager business will have total funds
under management of approximately $19 billion, making it the largest
independent non-US based fund of hedge funds. The scale of its combined
investment resources plus the sophistication and accelerated growth of Man's
managed accounts platform will benefit investors in the flagship funds of both
entities. With additional scale and resources, the combination has the
potential to attract assets and deliver strong returns to investors.
· No consideration will be paid up front. The contingent considerationto
be paid over three years comprises i) a maximum of $82.8 million in cash, net
of total net assets acquired (subject to post-closing balance sheet
adjustments) and dependent on asset retention ii) a 47.5% share of performance
fees attributable to FRM's existing funds under management over three years,
subject to a cap.
· Upon completion, the combined business will trade under the FRM brand
and will be led by Luke Ellis, Chief Executive of Man Multi-Manager and
previously Managing Director of FRM. Luke's knowledge of both businesses will
accelerate integration and ensure continuity for fund investors. Blaine
Tomlinson, founder of FRM, will become non-executive Chairman of the combined
· Sumitomo Mitsui Trust Bank Limited (SMTB) which advises a significant
portion of FRM's investors, has endorsed the acquisition by agreeing a new ten
year Strategic Relationship Agreement with Man. SMTB will also exchange its
current shareholding in FRM for a minority holding of preference shares in RBH
Holdings (Jersey) Limited, a Man subsidiary.
· Cost savings of $45 million per annum from operational synergies in the
combined group are expected to generate double digit accretion to Man's
adjusted management fee EPS in 2013. The internal rate of return from the
Acquisition is expected to be well in excess of Man's cost of capital.
Peter Clarke, Chief Executive of Man, said: "Thisfinancially compelling
transaction provides us with the opportunity to significantly improve the
profitability of our multi-manager business. By combining thecomplementary
investor basesof the two businessesand pairing FRM's well regarded
investment process with Man's managed accounts infrastructure, we can
increaserevenues with no material change to Man's current cost base. The
transaction has been structured so that the consideration adjusts in line with
asset retention, to ensure an attractive return for our shareholders.
"Luke Ellis's previous role as Managing Director of FRM will assist rapid and
efficient integration and delivery of the benefits of the combination to
investors, globally. We are delighted to be further strengthening our
relationship with Sumitomo Mitsui Trust Bank through a long-term strategic
partnership in Japan."
Luke Ellis, Chief Executive of Man Multi-Manager, said: "We see this
Acquisition as a big step forward for both businesses. Our shared DNA,
particularly across the investment process, will help us integrate rapidly and
remain focussed on delivering strong returns for our investors. Institutional
hedge fund investments continue to grow, and assets are concentrating with a
limited number of scale winners. The combined business will have the scale,
resources and expertise to succeed in this competitive environment."
Blaine Tomlinson, Chief Executive of FRM, said: "Over the past two decades, we
have built FRM from its origins as a private family office and hedge fund
research consultancy into a powerful institutionally focussed fund of hedge
funds provider. Thanks to my long partnership with Luke, the combination with
Man is a unique opportunity to move our business forward without the usual
level of integration risk for our investors. Our investors will benefit from
combined resources, including Man's substantial investment in managed accounts
and sophisticated analytics, knowing that the robust investment philosophy
that underpinned their allocations to FRM will remain at the heart of the
Mr Ohtsuka, Deputy President of SMTB, said: "We have known FRM and Man well
for many years and are delighted to extend our strategic relationship
agreement with the combined business. FRM has been an important part of our
asset allocation since 2005 and we look forward to providing our investors
with the significant additional benefits available through the combination."
There will be a conference call for journalists at 07:45 UK time this morning,
followed by a call for investors and analysts at 08:15 UK time. Dial in
details can be found at the end of this document.
Benefits to fund investors and integration plans
The integration of Man Multi-Manager (funds under management of $10.9
billion^2) with FRM (funds under management of approximately $8.0 billion^3)
is expected to create the following benefits for fund investors.
· A strong brand of commingled fund of hedge funds and sophisticated
institutional hedge fund solutions based on research strength, direct managed
accounts investments, risk and advisory services and manager seeding
· Increased resources and infrastructure under a stable and financially
independent corporate parent, with skilled professionals following a
consistent investment process enhanced by the proprietary analytics available
on Man's managed accounts platform.
· One of the most significant hedge fund research and risk management
teams in the industry, able to harness the benefits of scale to deliver better
returns to investors net of costs, through superior operating efficiency and
increased bargaining power with an enhanced range of underlying managers and
^2 Source: Man Group plc Interim Management Statement dated 1 May 2012
^3 Source: FRM estimates based on latest information available prior to the
date of this announcement.
SMTB, which advises a significant portion of FRM's asset base and owns 4.95%
of FRM, will continue to be a key partner for the integrated business and has
endorsed the combination by agreeing to a ten year extension of FRM's existing
Strategic Relationship Agreement with effect from completion of the
Acquisition. SMTB will also exchange its current shareholding in FRM for a
holding of preference shares in RBH Holdings (Jersey) Limited, the Man
subsidiary which will acquire FRM. This shareholding will entitle SMTB to a
dividend corresponding to a 2.65% per annum share of the net management and
performance fee revenues generated from the acquired FRM funds under
Luke Ellis, Chief Executive of Man Multi-Manager, will lead the combined
business and be Chief Investment Officer. Having served in the senior
management of FRM from 1998 to 2008, Luke's knowledge of FRM will accelerate
the integration and ensure continuity for investors. Blaine Tomlinson, founder
of FRM, will become non-executive Chairman of the combined operation. Upon
completion, the combined business will trade under the FRM brand.
Acquisition structure and financial considerations
The contingent consideration payable to FRM shareholders (other than SMTB) in
connection with the Acquisition comprises
· Two earn out payments, payable in cash following the first and third
anniversaries of closing, on a sliding scale dependent on levels of run rate
net management fees
o After one year, up to $47.5 million
o After three years, up to $66.5 million
· 47.5% of net performance fees generated from FRM's existing assets in
the three years after closing, capped at $60.8 million.
Man will pay an estimated $71.7 million in cash for an anticipated $102.9
million of net assets, principally cash, representing a discount to book value
of approximately $31.2 million, subject to completion balance sheet
The regulatory capital requirement associated with the Acquisition is expected
to be approximately $90 million. The Acquisition will be accounted for as a
purchase and consideration for the Acquisition will be satisfied from Man's
available cash resources.
Given the diverse nature of FRM's shareholder base, the Acquisition will
involve a scheme of arrangement under Jersey law and will be subject to
approval by FRM shareholders in general meeting and by the Jersey Court.
Irrevocable undertakings to vote in favour of approving the Acquisition and
implementing the scheme have been obtained from FRM shareholders holding an
aggregate of 97% of FRM's issued share capital (excluding shares held by
SMTB). In addition, the scheme will require approval by SMTB.
The Acquisition is also subject to the satisfaction or waiver of customary
conditions to closing including receipt of regulatory approvals, notably from
the Financial Services Authority (FSA) in the UK and from the Jersey and
Guernsey Financial Services Commissions. It is expected that the Acquisition
will complete before the end of Q3 2012. The Acquisition is also subject to
customary termination provisions. Unless Man and FRM agree to extend, the
relevant time periods will terminate on 31 October 2012 if the conditions to
closing have not been satisfied or waived on or by that date.
FRM is a global hedge fund research and investment specialist founded in 1991.
As at 1 May 2012, FRM had approximately $8.0 billion under management^4, with
a predominantly institutional investor base including a substantial client
presence in Asia. FRM's gross revenue margins are approximately 110 bps (90
bps net of distribution costs). Its revenues will be consolidated with Man's
institutional fund of funds business. Annualised integration savings of $45
million related to people, property and technology are expected within 18
months of closing. Once achieved, the incremental run rate costs associated
with FRM are expected to be approximately $30 million. Therefore, the
acquisition is expected to be double digit accretive to Man's adjusted net
management fee EPS in 2013. Restructuring and transaction costs, the majority
of which will be accounted for in 2012, are expected to be approximately $35
million. Based on conservative assumptions and excluding any revenue
synergies, the internal rate of return of the Acquisition is expected to be
well in excess of Man's cost of capital.
^4 Source: FRM estimates based on latest information available prior to the
date of this announcement.
At 31 December 2011, FRM had gross balance sheet assets of £120 million
($186.5 million) and profits before tax attributable to these assets of £4.3
million ($6.9 million)^5.
^5 Source: FRM audited accounts for the year ended 31 December 2011.
Head of Investor Relations and Financial Communications
+44 20 7144 3809
Head of Media Relations
+44 20 7144 2121
Maitland PR (for calls out of UK market hours)
George Trefgarne / Peter Ogden
+44 20 7379 5151
Man is a world-leading alternative investment management business. It has
expertise in a wide range of liquid investment styles including managed
futures, equity, credit and convertibles, emerging markets, global macro and
multi-manager, combined with powerful product structuring, distribution and
client service capabilities. As at 31 March 2012, Man managed $59.0 billion.
The original business was founded in 1783. Today, Man is listed on the London
Stock Exchange and is a member of the FTSE 100 Index with a market
capitalisation of around £1.5 billion.
Man is a signatory to the United Nations Principles for Responsible Investment
(PRI) and a member of the Dow Jones Sustainability World Index and the
FTSE4Good Index. Man also supports many awards, charities and initiatives
around the world, including sponsoring the Man Booker literary prizes and the
Man Asian Literary Prize. Further information can be found at www.man.com.
About Man Multi-Manager
Man Multi-Manager is a recognised provider of alternative investment
solutionsto institutional and private investors, mainly through advisory
mandates, pooled investments and managed accounts. It has offices in London,
Pfaeffikon, New York and Singapore. Driven by the belief that active
management adds real value, the primary objective of the Man Multi-Manager is
to deliver top-quartile, risk-adjusted performance for its clients. With a
seasoned team of investment professionals, the Man Multi-Manager has deep
experience as a fund of hedge funds manager across several hedge fund cycles.
For more than 14 years, managed accounts have formed an essential component of
its success, enabling investors to benefit from state-of-the-art transparency
through sophisticated systems that allow them direct and comprehensive
analysis of performance and risk.
Forward looking statements and other important information
This document contains forward-looking statements with respect to the
financial condition, results and business of Man Group plc. By their nature,
forward looking statements involve risk and uncertainty and there may be
subsequent variations to estimates. Man Group plc's actual future results may
differ materially from the results expressed or implied in these
The content of the website referred to in this announcement is not
incorporated into and does not form part of this announcement.
Nothing in this announcement should be construed as or is intended to be a
solicitation for or an offer to provide investment advisory services.
Nothing in this announcement is intended to be a profit forecast or a profit
estimate for any period or a forecast of future profits and statements
relating to earnings accretion or enhancement should not be interpreted to
mean that earnings per Man ordinary share for the current or future financial
periods will necessarily match or exceed its historical published earnings per
A conference call for journalists will be held at 07:45 UK time this morning.
UK Toll Number: +44 (0)20 3140 0820
UK Toll Free Number: 0800 368 1918
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A conference call for investors and analysts will be held at 08:15 UK time
UK Toll Number: +44 (0)20 3140 0724
UK Toll Free Number: 0800 368 1917
UK Playback Number: +44 (0)20 3140 0698
UK Playback Toll Free Number: 0800 368 1890
Playback Pin Code: 384893#
This information is provided by RNS
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ACQUAOVRUKAVURR -0- May/21/2012 06:01 GMT
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