Hedge fund operator Man Group has conditionally agreed to acquire US quantitative investment specialist Numeric for up to $494m in cash and options, to beef up its algorithm-based offering outside Europe and Asia.
Man will pay $219m in cash at completion, which is expected in September, plus up to $275m in profits-dependent options on the five-year anniversary of the purchase of Boston-based Numeric. The regulatory capital used for the deal is roughly $325m, which leaves around $200m surplus remaining.
Numeric has $14.7bn of funds under management and, according to Man, an "attractive" and well-established investment track record across a range of long-only and long-short, fundamentally based quantitative strategies.
Equally importantly, Boston company's clients are mostly US institutions, while Man's are mostly in Europe and Asia.
Man, whose 'quant' strategies are reliant on its AHL business, said the purchase would create a more diversified quant investment platform with over $25bn of funds under management and a broad product range across alternative and long only, trend following, technical and fundamental strategies.
Based on annualised returns, over 95% of Numeric's current strategies have historically outperformed their selected benchmark over one, three and five years, while all of its long only strategies covered by eVestment rank in the top quartile of their respective peer groups over one, three and five years.
Man's Chief Executive Manny Roman hailed Numeric's "innovation in quantitative investing".
He said: "The transaction provides us with the opportunity to advance two of our core strategic objectives: first, to build a diversified quantitative fund management business with significant assets in fundamentally based quantitative strategies and second, to develop further our presence in the US market.
"Man's strategy is to provide the optimal infrastructure and environment for its investment divisions, enabling entrepreneurial asset management focused on delivering attractive risk-adjusted performance for clients. Numeric is well positioned to benefit significantly from our scale and resources."
RBC analysts said the deal was done at a "fair" price and allowed Man to diversify away from underperforming products such as AHL and gave it access to US distribution, both of which are "positives".
The acquisition takes away $325m in surplus capital, which is approximately 11p per share, but adds at least $30m in run-rate management fee, "likely" performance fee potential of around another $20m and immediate access to US distribution - which is "hard to put a value on, but if Man is able to sell its existing product more strongly into the US, the result in flows could be substantial".
"In our opinion, the deal makes strategic and financial sense and the positive share price reaction is warranted."
Analysts at Credit Suisse, which advises Man, said the deal "seems sensible".
Shares in Man were up 6.10% to 105.2p at 12:50 on Thursday.