Orix tips 10% growth in global asset management

Orix Corporation has spoken optimistically about growth prospects for the global asset management industry on the back of its acquisition of Dutch firm Robeco.

The Japanese finance specialist agreed to pay 1.9 billion ($2.5 billion) to acquire a 90% equity stake in Robeco. AsianInvestor reported the financial details yesterday. Subject to regulatory approvals, the deal is expected to be completed in six months.

The transaction priced at an estimated six-to-seven times Ebitda which is lower than the average price of 11 times for recent deals in the sector.

Orix’s investor relations spokesman, Haru Yamada, says there was plenty of competition for the acquisition, and negotiations took over a year, partly due to valuation considerations.

 “We have looked at a lot of possible acquisitions, not just this one,” he tells AsianInvestor. “We are constantly looking. There is a lot of divesting from European financial institutions, as well as a lot of deals out there in Asia.”

Asked if Orix had looked at acquiring Deutsche’s asset management business, which the German bank openly sought to sell last year before changing tack, Yamada declines to talk about individual transactions.

He adds: “The price we paid with was lower than the competitor deals we looked at. We were able to acquire at a low multiple.

“The market was not great [for acquisitions] last year. In many cases we have not been able to agree on an initial price. For some companies there were also issues over compliance and governance, especially in Asia.”

In a conference call from Tokyo last night, Robeco CEO Roderick Munsters said he did not expect cultural clashes from the takeover, pointing to 400 years of trading history between the Dutch and the Japanese.

He added that Orix’s plans were to keep Robeco intact, but confirmed there would be an increasing focus on institutional, rather than retail, business. “We will shift more weight to the institutional part of the business, which will grow faster,” he said.

Bert Bruggink, CFO of Rabobank, denied rumours at the conference that the bank had held discussions with Macquarie over the sale of Robeco and that this had held up negotiations.

In terms of the outlook for the global asset management industry, Yamada says he is bullish. “We think overall in the world the asset management business will grow 5-10%, depending on the region,” he states.

“With an aging society and the growth prospects of emerging markets, we believe there will be a lot of opportunities to grow our asset management business.”

He talks up synergies between the two businesses, with Robeco strong in Europe and the US, and Orix in Asia and the Middle East. “We will use each other’s customer base to maximize the synergy effect of combining two forces,” he notes.

Orix says it is targeting a business model of providing financing plus related services, so clearly it sees asset management as a related service. At present it provides fund management chiefly through its loans servicing business.

“We are looking for finance plus servicing deals, in businesses where we can add value to individual transactions,” Yamada says. “In Asia it is more about emerging markets, where we think we are able to increase the value of companies through our expertise in diversified finance, as well as looking at pure financing deals as well.”

He notes Orix has experience in the financing field, particularly in leasing loans. But he rejects the notion that Orix will look to change the business model of Robeco.

He stresses it was the diversified businesses of Robeco Group – regional investment management divisions, its wealth management business Harbour Capital Advisors in the US and its CTA business in the Netherlands – that attracted it to the target.

Yamada adds that Orix intends to keep as many of Robeco’s 1,500 staff as it can. “We are doing everything possible to retain all the staff,” he says.

Robeco’s Asia-Pacific chief executive, Tony Edwards, was unavailable for comment as AsianInvestor went to press.

Yoshihiko Miyauchi, chief executive of Orix Group, says of Robeco: “The management team has displayed tremendous performance over the years and we are confident that they will continue to accomplish this. Orix will pursue further expansion in Europe and the US, as well as growth in Asia and Middle East.”

Robeco saw its AUM increase 26% to €189 billion as at the end of December 2012, of which around half is institutional. It recorded net new assets of €18.4 billion last year, while net profit increased 47% to €197 million. In performance terms, 65% of Robeco’s assets outperformed their benchmarks on a three-year basis.

Robeco opened an office in Sydney last year, to go with its offices in Hong Kong, Tokyo, Seoul and Mumbai. It focuses on institutional clients and distribution platforms in Japan and Korea, while in India it has investment management activities in Indian equities and fixed income as well as local distribution to retail and institutional clients through its JV with Canara Bank.

Rated A- by Standard & Poor’s, Orix started as a leasing company in 1964 and has since diversified into banking, life insurance and loans, among other things. It acquired an $11.7 billion fixed income-focused hedge fund in the US called Mariner two years ago. It also invests in real estate and Reits.

It has a presence in 27 countries outside of Japan, predominantly in Asia, and has an estimated staff of 10,000 in Japan, and 8,000 ex-Japan.