Shemara Wikramanayake, the most powerful woman in Australian finance, spent more than six months stalking her first big deal as Macquarie Group Ltd.’s chief executive officer.
When the investment bank first approached Kansas City-based asset manager Waddell & Reed Financial Inc. about a potential acquisition, the answer was no, according to people with knowledge of the matter. Macquarie had to knock on the door multiple times before being ushered in for talks, the people said, asking not to be identified because the discussions were private.
Wikramanayake and her team persisted, with the struggling asset manager offering an opportunity to extend the pivot to annuity-style businesses they’ve pursued for a decade. Macquarie’s Americas head Shawn Lytle, who made the initial overture to Waddell & Reed, worked hard to win over the firm’s management, forging strong personal ties over weeks of painstaking due diligence, the people said.
The talks that began around the beginning of the Northern summer last week culminated in a $1.7 billion deal, which will boost Macquarie’s assets under management in the U.S. to about $276 billion, lifting it into the top 25 active managers there. It’s the first major acquisition Wikramanayake has struck since taking charge of the Sydney-based investment bank and asset manager two years ago.
But in doing the deal at a time when global stocks are riding high, Wikramanayake, 59, has broken with a tradition that has seen Macquarie act most aggressively in periods of market dislocation. The last time she engineered an asset management acquisition, under the leadership of predecessor Nicholas Moore, Macquarie capitalized on the carnage caused by the global financial crisis to snap up Delaware Funds for $428 million in 2010, gaining a foothold in the U.S. sector. The Philadelphia-based firm had $135 billion in assets under management at the time.
This time though, Macquarie is paying a juicy 47% premium to Waddell & Reed’s share price, offering $25 apiece in cash for a company whose assets under management halved to $67.9 billion at the end of September from a peak of $135.6 billion six years ago. The move has raised questions over whether the lender is paying too much for a relatively sub-scale firm that places it only in the mid-tier of U.S. asset managers. It comes as Wall Street giants like Morgan Stanley and JPMorgan Chase & Co. are attempting a landgrab for some of the biggest asset and wealth managers.
But those who know Wikramanayake argue she was smart to pounce on a struggling business at a time when the industry is grappling with declining fees and fighting a losing battle against the lure of low-cost passive managers like Vanguard Group Inc. and BlackRock Inc. In a low interest-rate environment, Macquarie had to pay up for the scarcity value of a publicly-listed company in an effort to bulk up Delaware Funds in a cutthroat market where scale is key.
Wikramanayake, who turned Macquarie’s asset management business into the bank’s most profitable unit before taking on the top job, ultimately was able to offer a price that would win over Waddell & Reed by bringing in LPL Financial Holdings Inc. to buy the target’s newer wealth management business for about $300 million.
Craig Siegenthaler, an analyst at Credit Suisse Group AG, calculates the purchase price comes down to about $11 a share after accounting for Waddell & Reed’s excess cash and the sale of the wealth management unit. In a note to clients, Siegenthaler forecast large outflows from that sale but said he expected “sizable expense redundancies and access to Waddell & Reed’s large net excess capital balance to provide Macquarie attractive benefits.”
Macquarie shares fell 0.6% in Sydney trading Monday. The stock has almost doubled from its March lows.
Wikramanayake, who became the first woman to top a list of the highest-paid CEOs in Australia last year, is used to proving skeptics wrong. In a rare public appearance last month, she spoke of her experience as a young adviser leading a complex transaction for a senior client who “didn’t have confidence that a very young-looking, brown-skinned female would be able to get the job done in what was an important moment in his company’s journey.”
Instead of becoming demotivated, she said she focused on what she could control — delivering a successful outcome. Afterward, the executive thanked her “for teaching him about irrational prejudice and was happy to have me lead further transactions for his company.”
She is also likely to oversee more M&A for Macquarie. Already, the world’s biggest manager of infrastructure assets has been billed as a potential buyer of Australian wealth manager AMP Ltd., which effectively put itself up for sale after a sexual harassment scandal forced a boardroom shakeup. In the U.S., businesses including Wells Fargo & Co.’s $3 billion-plus asset management unit are up for grabs.
“We still think Macquarie will have significant dry-powder to potentially undertake further acquisitions” with about A$8.5 billion ($6.3 billion) of surplus capital, Goldman Sachs Group Inc. analysts Andrew Lyons and John Li said in a note last week. They highlighted active asset management in Europe as one area for potential expansion.
But Wikramanayake is likely to only act if the right opportunities arise, said John Sevior, head of Australian Equities at Airlie Fund Management Ltd., which owns Macquarie shares.
“Macquarie may have changed its spots over the years, with its mix of businesses becoming more annuity-focused, but it hasn’t really changed its modus-operandi, which is really about opportunism,” Sevior said. “This deal was opportunistic and any future M&A will be too.”