Man Group

Man Group's FRM Acquisition Receives Lukewarm Response from Moody's

Man Group's FRM Acquisition Receives Lukewarm Response from Moody's


Add another “meh” response to this week’s news that Man Group PLC (LON:EMG) will buy the hedge fund, FRM Holdings.

On Monday, Man Group said that over three years, it will pay as much as $82.8 million in cash for FRM, depending on the assets that FRM keeps after the takeover, reported Bloomberg. Through the acquisition, Man plans to add FRM to its fund of hedge funds unit and  combined, the division will be about $19 billion; according to Man Group, this will make it the largest independent fund of hedge funds outside of the U.S.

Goldman Sachs Group Inc. analysts, including Chris Turner wrote in a client note on Monday, “The acquisition has strategic merit.  Execution risk appears low and this deal would increase assets in Man’s multi-manager products by 73 percent, adding size in a part of the industry where scale is increasingly a competitive advantage.”

Meanwhile, here at Value Walk, we expressed skepticism about Man Multi-Manager back in February.

Both companies will also benefit from the acquisition as the now bigger firm will likely see hedge funds discounts, explained Luke Ellis, chief executive of Man Group’s multi-manager business. He added that a bigger fund-of-funds business can also benefit from the size  through cost savings and the opportunity to offer a broad product line to investors.

The FRM name will be used in the combined company.

The deal will save both companies $45 million in costs annually said Man Group and this may include possible job cuts.

Ellis said,“There will be certain places where there are overlaps in people.” He did not give a number.

The acquisition is expected to be completed in the third quarter and  money will not be paid up front.

Moody’s is Lukewarm About the Acquisition

In response to the news, the ratings agency Moody’s Corporation (NYSE:MCO) said this week it will continue reviewing FRM Holdings while it contemplates downgrading the senior debt of Man Group. Moody’s wrote that “the FRM transaction has no immediate implication for Man’s rating,” since “there is no immediate cash consideration” and because FRM is “relatively small” given Man’s size.

Man currently has a Baa2 rating from Moody’s.



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