The thing about useful stuff is: Henderson to buy New Star

Henderson to buy New Star Friday, January 30, 2009

Henderson today announced a recommended offer for New Star Asset Management, the business founded by John Duffield in 2000 and who owned just under 6% of the company, prior to its' share restructuring agreed with the banks.

New Star has rapidly fallen from the sky in recent months to the extent that it is currently majority owned by its banks who converted their debt into equity.

The deal values New Star at £115m in a cash and share deal, but includes £20m of cash in New Star balance sheet. Henderson will add £10bn of assets under management to its existing £50bn and it hopes to manage the new funds at a marginal cost to income ratio of 40% - most fund managers operate at 70%+ cost to income ratio. Some of the incremental costs will come from taking on about 150 staff, including the retail "star" fund managers.

With integration costs amounting to £31m, Henderson will have a busy year in 2009 as they are apparently also going to switch back office outsource provider, moving from BNP Paribas Securities Services to JP Morgan.

There has been considerable coffee shop discussion about what any buyer would actually be getting for their money since

New Star's brand is tarnished and so is regarded by many to have little or no value
There has been a huge exodus of funds as IFAs have lost confidence in the New Star business and some business that remains will clearly have waited to see what would happen before making a decision. As such more funds may leave, but this is normally factored into the price offered by the buyer.
A buyer will normally prefer to add funds onto their own platform and so the existing New Star infrastructure is unlikely to be of considerable interest to a buyer.
"Star" Fund Managers are a little like premiership footballers and can be tempted away by competitor cheque books. Consequently, it is normally cheaper to hire the staff you want.

The price is relatively higher than some recent deals including the sales of Credit Suisse Asset Management to Aberdeeen which involved £46bn AUM for £250m. Likewise, using a more comparable deal from 2000, Insight Investment bought Rothschild Asset Management and its' £10bn of AUM for £61m. Whilst the product mix and related revenues aren't identical, it does suggest that this wasn't a fire sale.

I'm just waiting for the Henderson advertising campaign to see how they will position this acquisition with IFAs - "There's a New Star at Henderson" perhaps?