Most summers, Robert H. Graham gets his kicks shooting the rapids on the Colorado River. Now, the 49-year-old president of mutual-fund giant AIM Management Group Inc. is about to embark on a heart-pumping journey into the world's latest financial megamerger: the combination of AIM with London-based Invesco PLC.
On Nov. 4, Invesco agreed to pay $1.6 billion for AIM. When completed next year, the new company, to be renamed Amvesco PLC, will become the tenth-largest U.S. mutual-fund firm (table). Worldwide, the two already command about $150 billion in everything from high-risk growth stock funds to tax-exempt bond and international funds.
PAYING UP? Houston-based AIM is one of the fund industry's hottest companies, and clearly Invesco is banking on Graham's leadership to make the merger pay off. He will oversee all the new firm's North American retail funds, including Denver-based Invesco Funds. Gary T. Crum, 48, who with Graham and AIM Chairman Charles "Ted" Bauer started the firm in 1976, will stay on as head of retail investments, while Bauer becomes vice-chairman. Invesco Chief Executive Charles W. Brady will rule the institutional and international businesses.
This merger is one of the largest yet in the fast-consolidating investment-management industry. In June, Morgan Stanley & Co. agreed to pay $1.1 billion for Van Kampen/American Capital Inc., and on Nov. 1, Franklin Resources Inc. paid $610 million for Heine Securities Corp. Driving mergers is the need to grow in order to offer investors more services. Investors liked the deal, bidding Invesco's stock up 1.7% in the first two days.
The big question now: Is the company buying at the market top? The price, 2.7% of assets, is rich compared with the 1.9% Morgan Stanley shelled out in June for the similarly sized Van Kampen. One reason is AIM's superior growth rate, up an annualized 26.6% so far this decade vs. the industry's 20.9%. Plus, eight of AIM's 18 rated funds have earned four or five stars, Morningstar Inc's top ratings.
AIM has something Invesco doesn't: a distribution system of advisers, brokers, and bankers that includes 120,000 financial advisers and more than 500 banks and brokerage houses. "The internal logic of the deal is very strong," says UBS Ltd. analyst Martin Cross.
But there are risks, too. AIM's best funds depend on a buoyant market for growth stocks in general and technology stocks in particular. A market fall would slow growth industrywide, but AIM funds could slow faster than most.
The deal is not one-sided. Invesco's growing international sales and strong 401(k) systems will fill in areas where AIM now lags. Invesco has 20 sales and money-management offices globally, including Hong Kong, Tokyo, and Paris. "We've brought both companies 10 years into the future," says Bauer. The new company will be more balanced, since it will be equal parts institutional and retail. Says Brady: "It's a wonderful fit."
To make the merger pay off, Graham must meld Invesco's value-investing style with AIM's growth-investing style. It must also maintain separate products for AIM's brokers and for Invesco's no-load buyers. Shooting the rapids may be a breeze in comparison.