TA Associates, Reverence Capital to Buy Russell Investments in $1.15B Deal

Oct 8 2015 | 10:44pm ET

Global private equity investor TA Associates is teaming with Reverence Capital Partners to acquire the Russell Investments asset management business from the London Stock Exchange Group (LSEG) for $1.15 billion.

Reverence will make a significant minority investment as part of the transaction, which is subject to customary closing adjustments and subject to regulatory and other approvals. It is expected to close in the first half of 2016, according to a company statement. 

LSEG bought Russell Investments from Northwestern Mutual Life Insurance for $2.7 billion in 2014, largely for its index business. The index portion of the company will be separated from the asset management side in the first quarter of next year, paving the way for the latter’s acquisition.

Consideration for the proposed deal is $1 billion on completion followed by four equal annual installments of $150 million starting in December 2017. The final price is subject to a downward price adjustment if fee revenues of the business decline in the period to closing below an agreed buffer amount, although the percentage of revenue decline covered by the adjustment mechanism is capped. 

In the six months ended 30 June 2015, Russell Investments had gross income of $757 million and net profit before taxes of $43 million, according to LSEG, implying a valuation of the asset management business in the neighborhood of 10x-11x annual pre-tax profits. 

LSEG put the asset management side of the Russell business up for sale in early 2015 in a broad bidding process. At least ten firms responded, including Towers Watson, China’s Shanda Games and CITIC Group. Discussions with CITIC reportedly reached a fairly advanced stage, but were torpedoed by the meltdown in Chinese stock market, thus opening the door again to private equity bidders. However, initial price expectations in the range of $1.5 billion proved too optimistic for a PE buyer. 

LSEG said it plans to use the net proceeds from the sale to pay down debt.

“We are delighted to partner with such an established and highly respected market leader in the investment management industry,” said Todd Crockett, managing director at TA Associates. “We believe that the breadth of Russell Investments’ investment and implementation operations, as well as its orientation to multi-asset and solutions investing, will continue to be a differentiator and driver of growth in the marketplace going forward.” 

“We are pleased to partner with TA Associates on the acquisition of Russell Investments,” added Added Milton Berlinski, managing partner of Reverence Capital. Crockett, Berlinski and Roger Kafker, a managing director at TA Associates, will join the Russell Investments board upon close of the transaction.

“We are excited to work with the principals at TA Associates and Reverence Capital, firms we’ve been well acquainted with for many years,” said Len Brennan, Russell’s president and CEO. “TA Associates and Reverence Capital have extensive experience in asset management and we consider their decision to invest in Russell Investments a notable endorsement of our leading position in outcome-oriented solutions.”

“We are very pleased to have agreed the proposed sale of Russell Investments to TA Associates and Reverence Capital, both of whom have strong track records investing in the asset management industry,” said Xavier Rolet, Chief Executive of LSEG. “We look forward to working with them and Russell Investments’ management to deliver a smooth transition of ownership.

TA Associates is one of the largest private equity firms in the world. It has invested in more than 450 companies, including 17 investments in the asset management space, and raised more than $18 billion in capital. 

Founded in 1938, Russell Investments has approximately $272.6 billion in assets under management and is one of the few firms to offer actively managed multi-asset portfolios and services that include advice, investments and implementation. 

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