Should Stromberg Do a $5B Deal?
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Thursday, May 17, 2018

Should Stromberg Do a $5B Deal?

Bill Stromberg may be on the hunt for a multi-billion-dollar acquisition, at least if some T. Rowe Price-watching [profile] analysts get their wish.

Yesterday, in a research note entitled "Better Late than Never - Upgrading to Outperform," Credit Suisse research analysts Steven Castano, Ari Ghosh, and Craig Siegenthaler argue that it's time for Stromberg, CEO of publicly traded T. Rowe (TROW), to consider deploying between $2 billion and $5 billion to make "large acquisition," perhaps to jumpstart growth in the Baltimore-based asset manager's "small European and Asian business."

The Baltimore Business Journal and Benzinga picked up on the Credit Suisse note.

"We think TROW can transport its success in actives/traditionals in the US to Europe and Asia, and a deal would significantly speed-up its effort," the Credit Suisse analysts write.

T. Rowe's market cap is currently $29.46 billion and, as the Credit Suisse analysts note, it has a "debt-free balance sheet" and more than $2 billion of excess capital. At traditional asset manager multiples of between one percent and four percent AUM, deploying up to $5 billion in capital could translate into T. Rowe buying a manager with up to $500 billion in AUM. The report does not mention possible T. Rowe acquisition targets.

This is not the first time that analysts and fundsters have pointed to T. Rowe as a potential acquirer. Yet at least as far back as 2009, T. Rowe watchers have observed "limited to zero inclination" at T. Rowe when it comes to big acquisitions, and T. Rowe has largely stuck with building out in-house: given that T. Rowe's 6,800-plus employees now have $1.01 trillion in AUM (as of March 31, 2018), focusing on organic growth seems to have worked well so far.

Yet a deal could boost T. Rowe's distribution efforts overseas. And in the U.S., a deal could launch T. Rowe into two growing spaces it has traditionally shunned: liquid alternatives and passive. Those two categories, as the Credit Suisse analysts point out, are "where most of the new money is migrating in the US."

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