by David Chaplin
After months of speculation and false starts, the London Stock Exchange Group (LSEG) has hived off Russell Investments for US$1.15 billion to two US-based firms: a kittle-known fund manager and a private equity funder. One suspects this is not the end of the story.
LSEG said last Friday it would sell Russell Investments to Reverence Capital Partners – founded by ex Goldman Sachs and General Atlantic executives in 2013 – and TA Associates, a Boston-based private equity firm.
Len Brennan, president and CEO of Russell Investments, said in the statement: “This transaction brings together a global asset manager with two of the most experienced private equity firms with significant asset management expertise. Russell Investments will maintain its operational independence, and TA Associates and Reverence Capital will provide us with strong financial backing, new strategic insights, and a commitment to help us continue to deliver innovative investment solutions to our global client base.”
LSEG said the deal should close in the first half of next year with an upfront payment of US$1 billion with the remainder to be paid off in four annual cash instalments starting in December 2017.
After tax and transaction costs, LSEG would realise about US$920 million from the sale, the statement says.
“… the implied consideration for the remaining index business is approximately US$1,860 million (after initial transaction and debt costs). This represents an implied multiple of [about] 18x current year EBITDA for the index operation,” Russell’s statement said.
Previous reports tipped Chinese-based firm Citic to pay up to US$1.8 billion for the Russell Investments business. Another Chinese company, best known for its gaming software, and rival Towers Watson were also said to be in the mix.
LSEG bought the entire Frank Russell company in 2014 for US$2.7 billion, primarily for its index business that was subsequently merged with its own FTSE benchmarking unit.
Brennan said in a client note while the new owners would play an active part in the “strategic and financial aspects” of Russell Investments, the current management team would continue as previously. The market, particularly big pension funds, will need to be convinced of this, given the stereotype of investments by private equity managers.
“Our capabilities, products, services, and client service teams will remain in place globally,” Brennan said in the note. “While these important aspects of Russell Investments will stay the same, TA Associates and Reverence Capital are committed to investing in the long term for growing and supporting our collective vision – further enhancing Russell Investments’ value proposition to our clients worldwide.”
Alister van der Maas, Russell NZ chief, said the sale was a “great result for the business”. “It’s exciting news for Russell,” van der Maas said. “The two new owners are experienced hands – and it’s nice to have the uncertainty about ownership resolved.”
He said it would be “business as usual” for Russell Investments staff and clients in New Zealand.
– David Chaplin, Investment News NZ
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