(Bloomberg) — Macquarie Group Ltd. has struck a $1.7 billion deal to buy Waddell & Reed Financial Inc. and expand its U.S. asset management business, in Shemara Wikramanayake’s biggest move since becoming chief executive officer two years ago.The acquisition will add Waddell & Reed’s $68 billion asset management unit to Macquarie’s U.S. investment management arm, propelling it into the top 25 actively managed, long-term, open-ended mutual fund managers and giving it the size and scale to compete with larger rivals, the Sydney-based bank said in a statement Thursday.Asset management has seen a wave of consolidation in recent years, with firms responding to a squeeze on fees from cutthroat competition and a shift to passive fund management that’s dominated by index-fund giants BlackRock Inc. and Vanguard Group Inc. The high costs of technology and complying with regulations are also weighing on money managers.For Macquarie, the acquisition continues its shift to more stable earnings drivers. It’s moving toward “annuity-style” businesses — such as asset management and financial services — which contributed about 70% of first-half profit, and away from the more traditional investment-banking businesses, such as trading and M&A advisory, where earnings slumped 42%. It will also further expand Macquarie’s global business, which generated almost 70% of total income last half, up from about 50% 12 years ago.For more detail on the announcement, click here.‘Good Deal’“It’s a good deal,” said TS Lim, banking analyst at Bell Potter. Macquarie “always had a lot a of fire power and it’s probably a good time to expand, which probably tells you a bit more about the way they think about long-term value. It expands on their annuities-style business segment, so that gives you less volatility and more consistency in earnings.”Wikramanayake led Macquarie’s asset management unit before being appointed CEO, turning it into the group’s most-profitable and fastest-growing division.The offer values Waddell & Reed shares at $25 apiece in cash or about a 47% premium to their closing price in New York on Wednesday. After the deal is completed, Macquarie will sell Waddell & Reed’s wealth management business, which has about $63 billion in assets under administration, to LPL Financial Holdings Inc. for around $300 million.Macquarie shares fell 0.3% in early afternoon Sydney trading Thursday. The stock has surged about 90% from its March lows.The U.S. represents the largest client segment in asset management globally, Macquarie said in the statement. The combined business will have increased scale and diversification of investment capabilities, making it more attractive to distribution partners, the bank said. Macquarie already has a presence in U.S. asset management through Delaware Funds by Macquarie, which it bought from Lincoln Financial Group in 2010.Founded in 1937 in Kansas City, Waddell & Reed employs about 100 investment professionals in its asset management division. Its biggest strategies include science and tech, mid-cap growth and high-yield fixed income.The acquisition, which is expected to close by mid-2021, will lift Macquarie Asset Management’s assets to about $465 billion.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
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