The announcement earlier in December that London-listed Liontrust Asset Management is to acquire Majedie Asset Management (MAM) generated only passing comment in the media.
For people of a certain age and outlook, however, the transaction is very interesting, not least because of Majedie’s provenance and the price that it commanded.
The reality is that Liontrust has almost certainly acquired a bargain, assuming of course, that it can be successfully integrated.
Liontrust will initially pay MAM’s owners, which include most of its employees, an initial £80 million. But this could increase to £120 million if certain requirements are fulfilled.
Assume that Liontrust pays the full £120 million and it will effectively be acquiring £5.83 billion of assets along with a very experienced and successful team of managers. This works out at a multiple of just over 2 percent of assets under management, close to what is always assumed to be the industry threshold.
But this overlooks the fact that MAM is very profitable.
According to its most recent accounts filed at Companies House it reported revenues and pre-tax profits of £46.92 million and £16.26 million respectively for the year to 30 September 2020.
This means that it was generating a pre-tax margin of 34.65 percent.
Should Liontrust pay the full £120 million on offer it will effectively be paying multiples of 2.56 times turnover, 7.38 times pre-tax profits and two percent of assets under management.
This looks very cheap given the amounts being commanded in other recent deals, especially those involving firms active in the UK wealth management sector.
Moreover, MAM has a very good provenance.
It can trace its inception back to 2002 when Majedie Investments plc, a London-listed investment trust, or closed-ended investment company decided to back a team of investment directors from Merrill Lynch Investment Managers (MLIM) that were seeking a new home.
Led by James de Uphaugh, Majedie’s current executive chairman and chief investment officer, all the directors involved had worked together at both MLIM and Mercury Asset Management, MLIM’s predecessor, as members of its highly regarded UK Alpha team.
At Majedie Investment the new arrivals, which also included Rob Harris, MAM’s current chief executive and Chis Field, an executive director, initially focused on managing its new owners assets before launching its own family of investment funds and securing segregated mandates from a variety of sources.
Given their background the initial focus was on the UK. But the new firm soon diversified into other areas including global and US equities.
Nonetheless, UK equities probably account for the majority of the £5.83 billion of client assets that MAM had under management on 30 November.
Its four UK equity funds accounted for £1.63 billion. The £1.21 billion of assets encapsulated within Edinburgh Investment Trust plc and Majedie Investments plc., the two investment trusts that MAM manages, would almost certainly have a heavy UK bias as would some of the £2.00 billion managed in the 15 segregated mandates that MAM currently oversees.
If nothing else the absorption of MAM into Liontrust will certainly reinforce the latter’s credentials of UK-focused assets.
