Invesco expands its reach

Morgan Stanley deal would make firm one of nation’s 10 biggest money managers

Invesco may be the biggest mutual fund company you’ve never heard of. That may be changing soon.

Taking advantage of a wave of divestitures among big Wall Street firms, the Atlanta-based money manager recently agreed to buy Morgan Stanley’s retail investment management operations, including its Van Kampen mutual funds.

The $1.5 billion cash-and-stock deal — Invesco’s largest of a long string of acquisitions — is expected to be completed in mid-2010.

Experts say the deal was a bargain that will make Invesco one of the nation’s 10 biggest money managers, boosting its assets under management by roughly 30 percent, to $536 billion.

It could also raise the profile of Invesco both for customers and people in Atlanta, as the deal broadens Invesco’s offerings of retail mutual funds, particularly in the United States.

Invesco Chief Executive Marty Flanagan called the planned acquisition “incredibly complementary.” It will fill gaps in the company’s investment offerings, he said, and increase its access to sales avenues at Morgan Stanley and other big brokers and financial advisors that distribute mutual funds.

“It was just a perfect fit,” the 49-year-old executive said during a telephone interview from Austin, where he was attending a mutual fund board meeting. “You’re going to have one of the broadest, deepest ranges of investment choices in the marketplace.”

Under-the-radar brand

However, Invesco isn’t likely to turn into a household name any time soon. It’s also unclear just how much of an impact on local jobs there will be.

The Van Kampen acquisition may indirectly generate more high-paying jobs in Invesco’s swank 293-employee headquarters in Midtown Atlanta. However, almost none of the 650 employees working at the units being acquired are based in Atlanta.

Indeed, 4,900-employee Invesco, which moved its headquarters from London to Atlanta about two years ago, has remained relatively obscure to folks who don’t work in the investment industry, even though it has longtime roots here.

That’s partly because most of its business is with so-called institutional investors such as pension funds and insurance companies.

Also, until a few years ago, many of its retail mutual funds that customers can buy through brokers or financial advisors didn’t bear the Invesco name. (Its most high-profile association for many may be the pro football stadium in Denver that carries its name, Invesco Field at Mile High.)

Still, Flanagan said he was surprised how little many Atlantans knew about the company.

“When I moved there four years ago it was striking to me,” Flanagan said. “It was not a well-known institution.”

Flanagan said Atlanta will still benefit from the acquisition, even though most of Van Kampen’s employees are in Houston, Chicago, New York, London and Tokyo.

“I think this is good news for Atlanta,” he said. “We’re a growing business.”

Acquiring, restructuring

Indeed, acquisitions have long played a role in the growth of Invesco. However, Invesco’s revenues and profits have swung up and down with the vicissitudes of the stock market, and its total employment has dropped more than 40 percent in the past eight years as the result of long-running restructuring efforts.

Chairman emeritus Charles W. Brady and several partners formed the company in 1978 from the money-management business of Atlanta’s Citizens and Southern Bank. Along the way, Invesco moved its headquarters to London, took over Houston-based AIM Management and changed its name to AMVESCAP PLC in 1997. It made several other acquisitions that added more products, offices and employees around the globe.

By the time Flanagan was named CEO four years ago, the company was struggling with a sprawling operation that had contributed to poor investment results and high costs. The firm also had lost clients after regulators alleged improper trading.

“The firm when I joined I would describe as a holding company of asset managers,” said Flanagan. “There would be 20 of everything,” he added, including redundant offices, products and executive teams.

Since then, the company has slashed more than 3,000 employees and consolidated offices. It changed its name back to Invesco, and moved its headquarters back to Atlanta, where it had long maintained its main executive offices. Even as it made cuts, it added other products through more acquisitions, such as exchange-traded funds and a private equity restructuring business, both in 2006.

Flanagan said Invesco’s campaign of cost cutting while adding more products and maintaining its global reach helped it weather the past two years’ financial crisis and capitalize on the current wave of divestitures.

“We came out of the storm in very, very good shape. ... It put us into a position to be a buyer,” he said. “In my mind, it validates our strategy.”

Mixed views of deal

Some industry analysts give Invesco high marks for the acquisition.

“Invesco is looking to expand scale and brand ... at a reasonable price,” said Daniel Fannon, an analyst with New York-based securities firm Jefferies & Co. “We’re pretty excited about it,” he added.

Others say such acquisitions can run into trouble if key portfolio managers bolt for other firms, in turn spooking customers to move their money elsewhere.

Indeed, Ryan Leggio, a fund analyst with mutual fund rating firm Morningstar in Chicago, said a number of Van Kampen’s best money managers have elected to stay with Morgan Stanley, which is retaining its institutional money management arm.

“Many of their funds probably will be run by different managers,” he said of the units moving to Invesco. But the transition will probably be OK, he added, because Invesco “has succeeded relatively well in putting together funds.”

David Hoffman, a reporter with Investment News, a trade publication, said Invesco’s operations became “very unwieldy” following its earlier string of acquisitions. “They really were in ... a real mess,” he said.

But Invesco’s risk this time may be relatively low, he said, because of the deal’s low price and the way the acquisition is structured.

Invesco says it doesn’t expect many job cuts because it is taking the money manager teams while Morgan Stanley is keeping the back office staff.

“I don’t know if it’s a coup, but it’s definitely going to help them,” Hoffman said of the acquisition.

More deals to come?

The deal is expected to immediately boost Invesco’s profits — not counting merger-related expenses and charges that could total $100 million.

Under the agreement, Morgan Stanley gets $500 million in cash and 44.1 million Invesco shares, giving it a 9.4 percent equity stake but no seat on Invesco’s board.

Hoffman said several money-management units have hit the market lately at bargain prices. Big banks and Wall Street firms began shedding their money-management operations a few years ago after lawsuits and an investigation by the New York attorney general’s office highlighted the conflicts of interest between owning money-management units and brokerage and trading operations, which can profit at the expense of the money managers’ clients.

“It really has caused the industry to look at itself,” he said. The financial meltdown “accelerated the trend,” he added, as struggling financial giants needed to raise cash and concentrate on their core businesses.

Among the deals: Bank of America sold part of its Columbia Management unit to Ameriprise Financial, and British bank Barclays PLC sold a fund operation to U.S. investment manager BlackRock.

Flanagan said he “took a pass” on many such potential deals, but liked what he heard when Morgan Stanley co-president James Gorman, who is slated to become the firm’s CEO in January, called early in the summer.

Morgan Stanley’s offer differed from most of the other potential buys, he said, partly because the big securities firm wanted to retain a stake in the business, and because its national network of brokerage offices offered a major additional avenue for Invesco to offer its mutual funds.

“As we analyzed this business it was just incredibly complementary to our business,” he said.

With the Van Kampen acquisition, Flanagan indicated that Invesco’s plate will be pretty full. But he didn’t rule out additional acquisitions while bargains are available.

“If it fits a skill gap or a product gap, we will look hard,” he said, because 12 months from now, “we will look at [the current period] as one of the best times to build an organization.”

About Invesco Ltd.

● Has $417 billion in assets under management.

● Has 4,900 employees.

● Headquarters and 293 employees are in Atlanta.

● Operates in 20 countries.

● Began in 1978 in Atlanta as a former unit of Citizens and Southern Bank.

● Acquisition of Van Kampen funds and related assets from Morgan Stanley will boost assets under management to roughly $536 billion.