One of the best-known names in the UK asset management market has agreed to buy a firm with more than £22 million in AuM, taking its total asset size up to over £65 million. It is a sign of how scale continues to be an important driver of M&A moves.

UK-listed Jupiter Fund Management has agreed to buy Merian Global Investors for an initial £370 million ($483 million) in shares, in a deal making it the UK’s second-largest provider of retail funds. The transaction highlights industry consolidation and fierce competitive pressures.

Jupiter announced the agreement yesterday to the London Stock Exchange after press speculation blew up at the weekend. The deal will add a firm with more than £22 billion in assets under management, it said.

The statement said that the agreement “enhances” Jupiter’s position as one of the UK’s leading active asset managers with more than £65 billion of AuM. Merian will diversify Jupiter’s business and bring substantial cost efficiencies, boosting earnings per share from 2021. 

Under the terms of the transaction, Jupiter will buy all the issued share capital of Merian for an upfront equity consideration of £370 million to be paid through the issue of 95,360,825 new Jupiter Shares to Merian shareholders, with an additional deferred earn-out of up to £20 million payable to key Merian management shareholders, subject to growing and retaining revenues in their investment strategies.

Jupiter will acquire Merian with a target net debt of £29 million (assuming the deal completes on 1 July 2020), subject to an adjustment if net debt at completion is higher than this figure.

After the deal is finished, Merian shareholders will own a total of about 17 per cent of the enlarged share capital of Jupiter, Jupiter said in a statement. 

“It is somewhat surprising that after Merian’s own change of direction backed by private equity around 18 months ago, they’re set to be acquired. Andrew Formica made a number of acquisitions while chief executive of Henderson and he has already put this strategy to work after less than a year as CEO of Jupiter,” Jonathan Miller, director, manager of research ratings, UK, at Morningstar, said. 

“In terms of investment teams there is little overlap so this is fairly complementary from that point of view." Still, the deal is symptomatic of the pressure active managers are finding themselves under.

Merian was valued just shy of £600 million in June 2018, but Jupiter is set to pay £370 million for the acquisition, with £29 million in net debt and Merian shareholders becoming a 17 per cent shareholder of the enlarged entity,” Miller said.

A number of forces are pushing asset management M&A: rising regulatory and other cost burdens have squeezed margins; and a decade-long bull market in equities have hit active management as a business model, to the advantage of so-called "passive management". Such a trend means that firms chase economies of scale as well as the ability to build out big brands and get onto the platforms and radar of advisors. In Jupiter's case, it is one of the best-known brands in the domestic UK market.