Bank of Ireland has agreed to buy 71.5 per cent of US hedge funds operation Guggenheim Alternative Asset Management (GAAM) for an estimated $184 million (€153 million).
The move, which brings Bank of Ireland into hedge funds for the first time, forms part of the bank's effort to develop its asset management division.
Once a star of group profitability, the business has struggled over the past year and a half, with funds under management falling from €57.5 billion in early 2004 to €44 billion at the end of September this year.
Brian Goggin, Bank of Ireland chief executive, said the bank's strategy was to harness its "significant international distribution capability" in asset management.
He said GAAM's "sophisticated" products should be attractive to Bank of Ireland's institutional clients. GAAM, a New York operation, is a fund of hedge funds manager - its funds invest in hedge funds - with about $2.8 billion under assets. It was established just three years ago as part of wealth and investment management firm Guggenheim Partners and focuses on institutional and high net worth clients.
Under the terms of the deal, the final sum paid by Bank of Ireland for the 71.5 per cent stake will depend on GAAM's performance to April 2006. GAAM's management will retain an 11 per cent stake, while Guggenheim Partners will keep 17.5 per cent. Both of these holdings are subject to put and call options, with Bank of Ireland likely to take full control of GAAM within about seven years if the business meets its expectations.
Some analysts yesterday questioned the valuation the bank has placed on GAAM, with Davy noting that the deal looked "rich" on the basis of assets under management and NCB describing the price as "full" by the same measure. A spokesman for Bank of Ireland said prospective earnings for next year are estimated at about $25 million, which would leave the price at about 10 times earnings. "We certainly think it's good value," he added.
He said the purchase fell into the same strategy as the bank's 2002 acquisition of a majority stake in Connecticut-based Iridian Asset Management.
He said the acquisition, which is expected to close next month, would allow the bank to meet client demand for alternative investments. Institutional customers have been particularly vocal in asking for hedge fund investment options, he said.
Goodbody noted that while the deal would not affect Bank of Ireland's earnings in any material way, it could imply "a similar move or two in the future".
Bank of Ireland's spokesman said the group's asset management strategy was still concentrated on organic growth but he acknowledged that future opportunities to fill out its "product portfolio" would be considered.
Shares in Bank of Ireland lost ground yesterday after the GAAM deal was announced, falling by 20 cent to €13.22. They subsequently recovered a touch to finish eight cent weaker at €13.34.
