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Friday, June 22, 2007

What Does the Nuveen Deal Mean?

Reported by Neil Anderson, Managing Editor

Have the private equity floodgates to the asset management industry been opened by Wednesday's unveiling of the $5.75 billion deal that will take Nuveen private? And what does the future hold for Nuveen itself? (Read "Nuveen Sells" from Wednesday's MFWire for details on the massive deal.)

"This is obviously the largest private equity transaction in the asset management space," Darlene Deremer of Grail Partners told MFWire. "It just shows the interest of private equity in the industry, thanks to high margins and strong growth projections."

Deremer's sentiments have been echoed throughout the media coverage of the deal. In the Wall Street Journal's Fund Track column (subscription required), Shefali Anand writes that "Private Equity Warms to Money Managers" in the wake of the Nuveen buyout and over on Marketwatch, John Spence says "Nuveen Buyout May Signal More Buyouts for Money Managers." And on Seeking Alpha, Rick Konrad even points readers towards other money managers to buy, arguing that "Nuveen Takeover Makes Legg Mason and Federated Look Cheap."

But not everyone is ready to bet on an explosion of private equity buyouts in the fund business just yet. Neil Bathon, managing director of PMR Associates, cautions that, "there are not too many firms like Nuveen."

"I don't think that the announcement of this deal necessarily puts more asset managers in play in that I suspect almost all firms are considered to be potential acquisition targets by someone out there," Bathon told MFWire. "It may cause more 'buyers' to look into what is going on in the asset management sector and it certainly provides 'owners' with a price point or valuation."

"Nuveen has an established presence among high net worth clients (something everyone is scrambling to achieve) and their mix of specialty managers is valued by distributors who are turning more towards asset managers that specialize in a particular discipline," Bathon explained. "I suspect the premium required to get the deal done will not apply to many other firms as their growth prospects over the next few years are just not as bright as Nuveen's."

If there's one firm that might turn a few heads following Nuveen, Bathon said, it's Eaton Vance.

"Nuveen and Eaton Vance have both been very successful in the closed-end business," Bathon explained, "and the base of assets in these products provides an excellent foundation for their revenues and earnings."

What about Nuveen itself? Deremer called Nuveen a "very well-run ... fabulous firm," and Bathon pointed to the asset manager's "bright ... growth prospects over the next few years."

"It may be reasonable to assume that Nuveen will have more capital to expand their asset management capabilities," Bathon said. "They have made some smart acquisitions in the past (i.e. NWQ) and so perhaps they will pursue a similar path in the future."

Deremer added that Nuveen's future is so bright that it may not stay private for long.

"Nuveen may float itself again sometime in the future," Deremer said.

Maybe more wedding bells are in Nuveen's future. 

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