Man Group shares rise after deal to buy Numeric

Shares in Man Group rose sharply after the UK hedge fund manager announced a deal to buy Boston-based Numeric for an initial price of $219m that will help expand its presence in the US.

The deal for the privately owned US hedge fund will see Man take over its $14.7bn of client assets under management, pushing the UK group's so-called quantitative investment business up to $25bn of assets following a difficult number of years.

Under the terms of the deal, Man will make an initial cash payment of $219m for 81.7 per cent of Numeric. Numeric management will retain 18.3 per cent of the company's equity and participate in an incentive plan that could be worth up to $275m over a five-year period depending on the performance of the business.

Man, which before the deal managed overall assets totalling $52.5bn, said it expected to use $325m in regulatory capital for the purchase, or about eight times Numeric's 2013 management fees of $38.4m.

Man shares rose 7.4 per cent to 106.5p on the news.

Man's last big acquisitions came in 2010 when it bought the hedge fund GLG Partners, and then in 2012 when it bought FRM, a fund of hedge funds manager.

Numeric, which was founded in 1989 before being bought by the private equity group TA Associates in 2004, had been marketed to several other large asset management groups, people with knowledge of the deal said. Man won an auction for the company.

Man, which traces its origins back to a 18th century rum distributor to the British Royal Navy, said Numeric had sharply increased its funds under management, from $7.6bn at the end of 2012 to $14.7bn at the end of May of this year.

Man said Numeric will be run using an expense ratio, which includes all operational costs including pay, of 52.5 per cent of revenues for five years, with Numeric management entitled to an annual dividend worth 10.5 per cent of profits each year.

Manny Roman, Man's chief executive, had previously said he was prepared to use the company's surplus capital of $550m to buy smaller rivals in the US as part of a strategy to expand in North America.

"This deal gives us four things," Mr Roman said. "Firstly, it enables us to build a leading diversified quantitative investment business, comprising AHL and Numeric. Secondly, it allows us to enhance our geographical presence in the United States. Thirdly, we're acquiring an investment manager with an excellent track record of performance and innovation, and lastly the deal clearly incentivises management to continue to deliver performance for clients".

Earlier this month Man said it would buy Pine Grove, a small US fund of hedge funds specialising in credit investing that manages about $1bn of assets under management.

Analysts at Bank of America Merrill Lynch said the deal would allow Man to sell its own products better into the US market and market Numeric's funds through its existing sales force.

"Numeric has been performing well, and so its product range should prove sellable," wrote Philip Middleton, a research analyst. "There should be ample opportunity for Man to sell Numeric to its clients, as well as to cross-sell to Numeric's investors".

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