Victory Squeezes More Out of the USAA Deal
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Thursday, May 16, 2019

Victory Squeezes More Out of the USAA Deal

Dave Brown and his team are squeezing an extra $10 million in cost savings out of their biggest merger yet.

David C. Brown
Victory Capital Holdings, Inc.
Chairman, CEO
Yesterday morning, on Victory Capital Holdings' Q1 2019 earnings call with analysts (as transcribed by Seeking Alpha), Brown confirmed that the publicly traded, multi-boutique asset manager is on track to close on its planned acquisition of USAA Asset Management Company on July 1, as expected. Brown also revealed that the shareholder approval process for USAA's mutual funds and ETFs is now complete. And he revealed that they've boosted their expected savings from the pending deal.

"We've increased our cost synergy estimates from $100 million to $110 million," Brown said on the call. "We now expect $60 million of synergies to be in place at close, up from the original estimate of $42 million. $95 million of synergies are expected with the six months of close, up from $83 million. The full $110 million is expected to be in place within 12 to 15 months of close."

Consistent with initial expectations, Brown also still sees one-time integration costs amounting to $50 million. (Cleveland-based Victory will be moving to a new headquarters in San Antonio, USAA's hometown.)

In response to a question from Ryan Aceto, a senior equity research associate at FBR, Brown clarified that the extra cost savings will come "across a few broad buckets," including back- and middle-office and more.

"We'll have some sub-advisers that we are taking in-house and changing," Brown said. "And then there is also just the power of the integrated model that will get some scale across administrative functions."

In terms of personnel changes from the deal, the Victory team initially expected to keep on more than 300 USAA employees. Yesterday Brown confirmed that "50 key USAA investment professionals" will stay on-board, as will 50 people for the USAA direct channel call center.

"Additionally, our outsourcing partners have retained 120 USAA employees, who will be dedicated to member services and back office functions," Brown said.

As always, Brown also talked on the call about Victory's deal pipeline, this time in response to questions from Chris Shutler, an equity research analyst at William Blair, and Kenneth Lee, vice president and senior equity analyst at RBC.

"We still feel like the industry is just starting to begin to consolidate. And we think that's going to accelerate our platform, again, as we have discussions and conversations with lots of different potential partners," Brown said. "The pace and the cadence that we have done deals in the past will continue, if not accelerate."

Tuesday afternoon, after the market closed, the Victory team reported $0.35 per diluted share of adjusted earnings with tax benefit, missing expectations by $0.01, and revenue of $87.5 million, missing estimates by $3.4 million. Victory's AUM reached $58.119 billion at the end of March, and based on those numbers the Victory team expects to have $138.1 billion in AUM once the USAA deal closes.

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