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Thursday, May 11, 2017|
After a Third Deal, an Aggressive Acquirer Resolves to Keep Hunting
A subadvised mutual fund shop's chief continues to hunt for more acquisitions after making his third acquisition in nine months and rebranding the parent of all four shops.
"You should expect to see some other acquisitions down the road from us," Needles tells MFWire. "We're always in discussions."
"Many people have thrown in the towel because there have been some structural advantages to passive over the last decade," Needles adds. "We are aggressive acquirers of active asset managers right now. We're committing substantial resources."
Needles predicts that the "future for the right type of active managers ... is about to get much more favorable than it has been over the past decade."
Needles' latest acquisition, of a majority stake in Atlanta-based Shapiro Capital Management, closed last month. He describes Shapiro as a "longstanding fundamental manager" in the value space with a team of "concentrated, high-conviction managers with longstanding relationships with their clients." Founded in 1989 by Samuel Shapiro and Michael McCarthy, Shapiro Capital Management now has about $4.3 billion in AUM in separate accounts and has a team of nine.
"Culturally it was a great fit for us," Needles says. "That and the investment acumen are the two things that we look for in any acquisition."
Also last month, American Beacon's quiet holding company, formerly Astro AB Borrowers (a name that arose out of the sale process when private equity firms Estancia and Kelso bought American Beacon two years ago), rebranded as Resolute Investment Managers. Needles also serves as chairman, president, and CEO of Resolute, which is the multi-affiliate investment management parent company above American Beacon. Resolute also bought a majority stake in Alpha Quant Advisors (formerly Crest Investment Investment Partners) in October 2016 and a minority stake in ARK Investment Management in July 2016.
"We did a search for names. We came up with names we liked, and a lot of them were taken," Needles says. "Resolute was one we all liked and it was available. In many ways it exemplifies the values of the company."
The Resolute name is what will be used "if and when we take the company public," Needles adds.
American Beacon, the biggest pieces of Resolute, had $53.8 billion in AUM as of December 31.
Looking ahead, Needles contrasts the Resolute acquisition model with other M&A going on in the asset management space. Needles want to take stakes that are just barely majority in size.
"We want to keep as much equity in the hands of affiliates as possible so that they're highly motivated," Needles says. "It's the best of all worlds."
Meanwhile, a lot of consolidators in the asset management business "are buying assets and taking costs out," a model he sees as "potentially problematic long-term," Needles says.
"You create cultural friction," Needles adds. "How do you attract and retain good people if you're constantly right-sizing the organization every time you make an acquisition?"
Most acquirers start at the financials. We're all about under-appreciated, under-distributed investment excellence. We're going to help them grow the business ... There are very few strategic partners out there that can help people grow to the next level.
Needles does expect to create affiliated distribution and back-office companies (Resolute Distributors and Resolute Investment Services, respectively). Yet Resolute's boutiques will be able to pick and choose which services they get from Resolute, he says, and which they handle themselves or outsource to third-parties.
It's a highly-customized structure. Other acquirers centralize everything [like trading and back-office functions] ... but very high-quality managers are very good at what they do. We're looking for really good investment managers ... We're not looking for fixer-uppers or to take costs out. We're looking to grow them organically. When we come in, they say, "What changes are you going to make?" "Well, none. We're buying you because we like what you have and we're going to help you grow that business going forward.""We're not here to fix it if it isn't broken," Needles adds.
For example, with Shapiro, the firm has grown largely thanks to word-of-mouth referrals, Needles says.
"They didn't have any sales people," Needles says. "We could help them grow."
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