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Rating:Why Victory Is Buying USAA AMC Not Rated 0.0 Email Routing List Email & Route  Print Print
Thursday, November 08, 2018

Why Victory Is Buying USAA AMC

Reported by Neil Anderson, Managing Editor

There are four main reasons why Victory Capital Holdings [profile] is paying up to $1 billion for USAA Asset Management Company [profile], according to Victory chief Dave Brown.

Brown unveiled the deal after market close on Tuesday. Publicly traded Victory will pay $850 million up front; plus, according to Victory's investor presentation yesterday on the deal, Victory has agreed to pay up $150 million more in an earnout over the next four years, depending on how the deal goes. Barclays Capital and RBC Capital Markets advised Victory on the deal, while Goldman Sachs advised USAA. Willkie Farr & Gallagher provided legal advice to Victory, and Simpson Thacher & Bartlett did so for USAA.

USAA started USAA Investments in 1970, though USAA Asset Management Company launched in 2011.

In the presentation yesterday, Brown offer four "strategic rationale" for the deal: diversification of Victory's product lineup, boosting Victory's size and scale, adding a new distribution channel, and the "financially compelling" nature of the deal.

On the financial impact, the Victory expects the deal to translate into about $100 million in "expense synergies net of investments" over the next 12 to 15 months, along with a one-time integration cost of $50 million and annual tax savings of $14 million to $16 million. A USAA spokesman confirms that Victory plans to keep more than 300 USAA Asset Management employees on board while turning the team into Victory's 11th investment franchise. (This will be Victory's first office in Texas.) Yet some job cuts are expected.

"Fewer than an additional 100 employees may be affected and could eventually leave USAA," the USAA spokesman says. "USAA has committed to providing care and support for these individuals."

In terms of scale, buying USAA Asset Management and Harvest is expected to more than double Victory's AUM to $144.4 billion.

Brown and his team also see a distribution boost from the USAA deal, pointing to USAA's big membership base of about 13 million. USAA has a strong brand in particular in the military community, as it focuses on serving armed services members and veterans and their families.

Finally, the Victory team sees the deal diversifying their product base, boosting their lineup in particular in the fixed income and "solutions" areas. USAA also brings Victory its first money market fund business.

Meanwhile, here's how USAA is explaining the deal to its members: namely, as giving access to a broader product lineup from "an investment industry leader."

"Today's investment industry is filled with disruption driven by rapidly advancing technology, changing consumer preferences and fierce competition to deliver strong performance, with low to no fees and a wide selection of products," a USAA spokesman tells MFWire. "A strategic relationship between USAA and Victory Capital provides members enhanced investment teams offering exceptional expertise and a wider array of Mutual Funds and ETFs as well as the USAA 529 College Savings Plan."

"Victory Capital shares similar company values and plans to provide exceptional member service and a culture aligned with USAA," the USAA spokesman adds. "Victory will operate the USAA Asset Management Company as its eleventh investment franchise and has committed to maintaining the USAA Mutual Funds and not raising expense ratios." 

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