Affiliated Managers Group, Inc. AMG announced that Assured Guaranty US Holdings Inc., a subsidiary of Assured Guaranty Ltd., agreed to buy all of the outstanding equity interests in BlueMountain Capital Management, LLC. Affiliated Managers invested in BlueMountain in 2007 and was its majority stakeholder, holding 54% of its stake.
After realizing that BlueMountain no longer had good growth prospects, Affiliated Managers wrote down the value of its stake in this alternative asset management firm by $415 million in May. Since then, Affiliated Managers has been working with advisers on a potential sale of its stake in BlueMountain.
Assured Guaranty’s deal to buy BlueMountain is expected to close in the fourth quarter of 2019, subject to the satisfaction of customary closing conditions. In fact, the transaction is likely to be immediately accretive to earnings per share (EPS) of Affiliated Managers.
Per the terms of the deal, Assured Guaranty will pay the purchase price of nearly $160 million. Of this, not less than $114.8 million is expected to be paid in cash. The remaining consideration will be paid either in cash, common shares, one-year promissory note or in a combination of the foregoing at the option of Assured Guaranty.
Of the remaining $45 million, Assured Guaranty is expected to issue $22.5 million of its common shares to Andrew Feldstein, the CEO and CIO of BlueMountain.
Additionally, Assured Guaranty will contribute $60 million in working capital to BlueMountain at the time of closing of the deal. Moreover, it is expected to provide an additional $30 million of working capital within a year of deal closure.
Further, Assured Guaranty is likely to allocate $500 million of its financial guaranty subsidiaries’ portfolios to BlueMountain’s funds, collateralized loan obligations (CLOs) and separately managed accounts over three years.
Notably, subject to certain limited adjustments, Affiliated Managers is expected to receive $91 million in cash during deal closure.
Jay C. Horgen, the president and CEO of Affiliated Managers, stated, “We are pleased to have had a good partnership with BlueMountain over many years, and also that we worked closely with our long-term partners at BlueMountain to achieve an outcome that is in the best interests of BlueMountain’s clients and employees and AMG’s shareholders. As BlueMountain becomes part of a larger consolidated organization, we wish Andrew Feldstein and his management partners the best going forward.”
Moreover, Dominic Frederico, the CEO of Assured Guaranty, said, “We have been searching for the right asset management platform for over three years, and we found it in BlueMountain, a seasoned asset management firm with a compatible credit culture, complementary market knowledge and the scale to make a material contribution to Assured Guaranty’s profitability.”
Barclays PLC BCS and Purrington Moody Weil LLP advised BlueMountain for the deal, whereas, Assured Guaranty was advised by Goldman Sachs GS, Greensledge Capital Markets LLC and Mayer Brown LLP.
While Affiliated Managers has considerable capability to invest in other companies and is expected to continue generating growth through new investments; the presence of substantial intangible assets on its balance sheet remains a concern. Moreover, the use of high levels of debt by the company will likely hurt financials and limit flexibility.
Shares of Affiliated Managers have lost 24.6% in the past six months against nearly 1% growth recorded by the industry.
Currently, the company carries a Zacks Rank #4 (Sell).
A better-ranked stock from the same space is Ameriprise Financial, Inc. AMP. Its shares have gained 4% over the past six months. The Zacks Consensus Estimate for the company’s earnings has been revised 1% upward over the past 30 days. The stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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