MutualFundWire.com: Post-OpFunds, Flanagan Trims More, and Faster, Than Expected

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Thursday, October 24, 2019

Post-OpFunds, Flanagan Trims More, and Faster, Than Expected

After a giant asset management acquisition in the spring, a publicly traded firm is slimming down more than expected, and faster, too.

Martin L. Flanagan
Invesco
President and CEO

"We've achieved annualized expense synergies of $501 million for the integrated business, ahead of schedule and $26 million above our original target," Marty Flanagan, president and CEO of Invesco [profile], confirmed yesterday morning in the Atlanta-based firm's Q3 earnings report. Invesco closed back in May on its planned purchase of OpFunds, which Flanagan had originally predicted would generate $475 million in cost synergies by mid-2021; so the new figure is a 5.5 percent increase above expectations, more than a year ahead of schedule.

"We are accelerating the timeline," Flanagan said yesterday on Invesco's earnings call (as transcribed by Seeking Alpha), in response to a question from UBS analyst Brennan Hawken.

That $501-million comes from projected run-rate operating expenses for Invesco of $2.905 billion, compared to standalone operating expenses of $961 million for OpFunds and $2.445 billion for Invesco. Greg McGreevey, senior managing director of investments at Invesco, confirmed on the earnings call that the $501 million is net cost-savings figure, and that the raw number, "closer to $531 million," included "about $30 million of investment that is already being done relative to the Oppenheimer transaction." And more trimming may be in the cards, too.

"There is opportunity for us to deliver more net synergies to the bottom line beyond the $501 million, we believe, but we're not at the point where we're able to commit to that," McGreevey said on the call in response to a question from Goldman Sachs analyst Ryan Bailey.

"There are more opportunities for us to sort of generate more synergies," Invesco's chief financial officer, Loren Starr, said on the call in response to a question from J.P. Morgan analyst Ken Worthington. "We will continue to keep you updated in terms of the potential upside on that number."

Invesco's headcount, though up 19.2 percent year-over-year (i.e. when compared with pre-merger numbers), fell 0.8 percent quarter-over-quarter, to 8,835 people as of September 30, 2019. When the deal was first announced last year, OpFunds had more than 2,000 employees, and Invesco had more than 7,000.

The Invesco team reported Q3 2019 adjusted diluted earnings per share of $0.70, beating analysts' estimates by $0.13, though unadjusted diluted EPS of $0.36 missed estimates by $0.24. Revenue of $1.2287 billion beat estimates by $10 million. AUM rose 12.5 percent quarter-over-quarter (and 20.6 percent year-over-year) to $1.1882 billion, despite long-term net outflows of $11.1 billion.

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