Near worthless GAM still isn't an enticing bargain
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Aimee Donnellan
LONDON, March 8 (Reuters Breakingviews) -Shopping in the bargain bin can often lead to bad purchases. That’s the danger facing prospective bidders for Swiss asset manager GAM GAMH.S, which has lost over 95% of its value following a bond fund scandal in 2018, and is now hurriedly looking to sell itself. Even with the knock-down price, a new owner would have to deal with losses, slash costs, and pray that the worst is over.
GAM’s troubles began in 2018. Back then, the Zurich-based group was forced to sack star money manager Tim Haywood over failure to do due diligence at its absolute bond return funds. The fallout cost the group its largest fund, and prompted clients to pull money. The year before the scandal GAM had nearly 159 billion Swiss francs under management. As of September last year, that figure had shrunk to just 74.6 billion Swiss francs, due to plunging markets and outflows.
Chief Executive Peter Sanderson’s turnaround plan is struggling. The former BlackRock BLK.N executive has been slashing costs and collaborating with software specialist SimCorp SIM.CO. But GAM is not expected to break even until 2024, according to Visible Alpha forecasts. It is now worth a measly 102 million Swiss francs.
There are bright spots: by GAM’s own reckoning, some 73% of its funds were beating benchmarks over three years in June. Assume a bidder pays a premium of 25% to GAM’s market capitalisation, and then stomachs losses of around 40 million Swiss francs in 2022 and 2023, in line with Visible Alpha estimates, bringing the total outlay to around 168 million Swiss francs. If they could take out some 20% of 2022’s 170 million Swiss francs of personnel and administrative costs, in line with asset management deals, then net income would reach 27 million Swiss francs in 2024. That’s equivalent to a respectable 16% return on the purchase price.
Yet such an outcome hinges on GAM sustainably stemming the outflow of clients and its assets under management holding up in volatile markets. And even mergers between healthy fund groups cause clients to delay investments, and fund managers to leave. GAM has been the subject of takeover speculation for three years, with buyers including Generali GASI.MI looking at the company, but no deal emerging. A deal now looks trickier than ever.
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CONTEXT NEWS
Swiss asset manager GAM is seeking a buyer for the business, the Financial Times reported on March 6, citing multiple sources familiar with the situation.
GAM postponed the release of its annual results to the end of April in order to try to sell the company, the Financial Times said. UBS was appointed to help find a buyer at the end of 2022.
GAM shares have lost 96% of their market value since 2018, and its market capitalisation was just 102 million Swiss francs on March 8.
Editing by Neil Unmack and Streisand Neto
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