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 around 100 million francs (112 million dollars). That is with an offer on the table.
A name change might signal a reduced state or a restart as an independent activity. Investors led by French entrepreneur Xavier Niel would prefer it to a takeover by British fund manager Liontrust. Niel’s group promises to do so increase its share above 10 percent.
Active subscale fund managers are joining forces under pressure from index funds. Increasing cheap makes sense for Liontrust. Paying with shares even more.
The deal certainly seems to favor the bidder; Liontrust offers a 12% stake in the combined group, but contributes only two-fifths of the total assets. Liontrust’s offering is approximately 0.4 percent of GAM’s assets under management. That’s about a third of Liontrust’s valuation and even lower than the industry multiple.
GAM has drifted chaotically after its scandalous involvement in the 2018 Greensill debacle. Operating losses soared to 42 million francs last year. Fund management assets of 23 billion francs are down from 84 billion francs in 2017. The board of directors is unable to ask for better terms. A fifth of GAM’s shareholders have already signed up for this. Fees are showing signs of stabilising,
The bidder is unlikely to offer much more. Liontrust has taken out a loan to help it complete the transaction, if it goes through. The cost reduction assumptions are extensive. Liontrust hopes to achieve £57m of recurring savings by spending £45m. Typically, these would cost between £57m and £86m in asset management, noted Numis’ David McCann. Job cuts in countries with strict employment laws make work harder. The targeted operating margins of 30% will be difficult to achieve.
Wealth management franchises are valuable for their ability to pool resources and talent. GAM lost both years ago. Unless a rival bid materializes, a takeover of Liontrust is the least worst option.
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Article modified after publication to clarify the purpose of the Liontrust loan.
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