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Monday, January 23, 2006

Amvescap Buys PowerShares

by: Armie Margaret Lee

What is an ETF specialist worth? Amvescap may have provided the only answer to this question on Monday when it purchased PowerShares Capital Management for an initial $60 million in cash. That price tag works out to a floor price of roughly 1.7 percent of assets, a figure well short of the going rate for active managers.

However, $60 million was just the opening ante for Amvescap to get into the game. On top of the $60 million at closing, the deal also calls for Amvescap to pay at least $170 million based on management fee performance, plus an amount tied to growth in fees.

The $230 million -- assuming no growth in fees -- works out to a hefty 6.5 percent of assets, a price far above that paid for other, more established, asset managers in recent years.

Why the steep price? PowerShares was essentially the only shop on the market for a fund firm seeking a turnkey entry into exchange-traded fund arena.

Indeed, the deal would position Amvescap as a significant emerging player in the ETF market, Marty Flanagan, Amvescap president and CEO told reporters.

Wheaton, Illinois-based PowerShares is the fourth largest ETF provider, managing more than $3.5 billion in assets in a family of 36 ETFs.

"The addition of PowerShares is a natural extension of our core mission to provide a broad image of investment management solutions to our diverse clients across the globe," said Flanagan, who took the reins at Amvescap last August.

ETFs have been experiencing an explosion in popularity, with recent annual growth surpassing those registered by most other asset management products. From their beginnings in 1993, ETFs in the United States have grown to $289 billion as of end-November last year, according to data from the Investment Company Institute.

Calling the acquisition a "very important event for investors," PowerShares president and CEO H. Bruce Bond said that "for the first time, a leading investment management company with tremendous institutional and retail distribution capabilities is embracing ETFs."

De Guardiola Advisors and Merrill Lynch & Co. acted as financial advisors to Amvescap, while A.G. Edwards served as adviser to PowerShares.

The transaction, which is subject to the approval of Amvescap’s board of directors and shareholders of PowerShares’ ETFs, is expected to close in the second or third quarter of 2006, the London-based asset manager said.

 

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