NatWest Group propelled itself into the fund management big league yesterday with the acquisition of Gartmore. The pounds 472m purchase price is well below the pounds 600m value Gartmore's French parent, Banque Indosuez, had hoped for when it put the fund manager into play last September.
The agreed sale, which will create the fourth biggest non-life investment manager in the UK, with combined funds under management of over pounds 55bn, marks an important step in NatWest Group's strategy of expansion in key areas.
Paul Myners, Gartmore's chief executive, along with his top officers, will take over the main posts of the combined operation. Paul Whitney, the head of NatWest Asset Managers, has resigned immediately with an undisclosed pay-off. The seven directors of Gartmore are to make pounds 2m between them on share options triggered by the sale. Mr Myners is expected to make a pounds 400,000 profit on the exercise of his 584,000 options.
"NatWest has pulled off this deal at a pretty reasonable price, given the potential for growth and savings it offers," said Tony Cummings, an analyst at SBC Warburg. Gartmore's expertise in active fund management complements NatWest 's specialisation in passive or index-tracking fund management. The price works out at 1.9 per cent of funds under management or about 20 times Gartmore's historic earnings. Gartmore yesterday reported flat 1995 pre-tax profits at pounds 35.5m.
The purchase reflects NatWest's targeting of long-term savings as a market with enormous potential. "This is an important strategic move for us in that it enables us to build our asset management and retail distribution skills," said Derek Wanless, chief executive of NatWest Group. Pressure on state budgets and the trend towards encouraging private individuals to save and provide more for their own retirement, health and care needs, combined with a steadily ageing population, offer considerable growth prospects for the fund management industry.
The deal brings NatWest's large customer base and distribution potential together with Gartmore's strong brand name and well-regarded expertise in fund management. "This really will be the most powerful linkage between an investment management organisation and a retail distribution network in Britain," said Mr Myners. Mainly for this reason, he had been keen for Gartmore, 85 per cent of whose clients are UK-based, to be sold to a British parent. "I am delighted this has been a UK purchaser - the advantages to both sides are that much greater," he said.
There had been strong foreign interest in Gartmore in the early months of the sale, notably from Berliner Bank of Germany and Aegon, the Dutch insurer. NatWest had also shown initial interest, but all had baulked at the high prices being talked about. Talks stalled and Phoenix Securities, handling the sale, had to issue an announcement last month that Indosuez still wanted a buyer. NatWest re-entered the arena and clinched the deal at a lower price within three weeks.
The distribution joint-venture between Gartmore and Nationsbank of the US is to continue, giving the new fund management group, with NatWest's customer base added as well, a retail distribution potential of 15 million.
NatWest is to embark on an investment programme worth several millions of pounds - Project Dolphin - to strengthen its distribution technology and capacity, to take advantage of the Gartmore acquisition. NatWest shares closed up 6p at 674p yesterday.
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