Valuations for Asset Management IPOs Seem Strong - For Now
August 9, 1999
Neuberger Berman of New York announced recently that it will be going ahead with its plans for an initial public offering. For the time being, the market for such offerings seems good, but industry experts say that the rosy outlook might be only temporary.
Neuberger Berman's partners voted in favor of the IPO on July 28 and will file with the SEC soon, said Stanley Egener, president of Neuberger Berman Management. Since the firm is in the filing stage, he declined to comment further on the matter.
Another investment management company IPO that will be coming in the near future is BlackRock, Inc., of Pittsburgh, a subsidiary of PNC Bank Corp., which filed a registration statement with the SEC back on May 13.
Industry sources said that for the time being, valuations of asset management companies have rebounded from their drop last fall, but the way the market is going, matters could change quickly.
When asked if the timing of the Neuberger IPO is good, Geoff Bobroff, president of Bobroff Consulting of East Greenwich, R.I., said, "Your guess is as good as mine. Valuations have picked up a bit. But in 60-90 days, the market moves with such speed, it may not turn out to be the right time.
"While the marketplace may be favorable, the after-market activity of financial stocks is a challenge," Bobroff added, meaning that the stocks have tended to drop not long after the opening day. He pointed out that as an industry, financial services stocks like Neuberger Berman's are classified as small-cap or lower mid-cap and thus are prone to the volatility normally associated with any small-cap offering.
Valuations of asset management firms were higher last year before the market took a drop in the fall, said Neil Epstein, an analyst at Putnam, Lovell, deGuardiola and Thornton, a New York-based investment banking firm. Since then, valuations have risen, he said.
The median multiple for a public mutual fund company is currently about seventeen times 1999 earnings, according to Epstein. But back in July of 1998, he said, the median figure was as high as 22 times earnings.
In 1998, there were two mutual fund companies that had IPOs: Waddell & Reed Financial of Overland Park, Kan., and Federated Investors of Pittsburgh, Bobroff said. The only one this year, so far, has been Gabelli Asset Management of Rye, N.Y.
The Gabelli IPO has definitely had its ups and downs. After opening on Feb. 11 at $17.75 per share (MFMN, Feb. 15, 1999), it has traded at a low of 13 1/16 and a high of 18 3/4 since then, according to CBS Marketwatch. On Aug. 3, it was trading at around $17.
The IPO for Waddell & Reed also seemed to follow the pattern of doing well at the outset, but dipping not long afterward. The IPO, which debuted in March of last year, opened at $23 per share; after the first day it rose to about $26, said Keith Tucker, the firm's chairman. In subsequent months it fell to between $17-$18, when the asset management sector dropped in September through October, had added.
Currently, the stock is trading at around $26 per share, according to Tucker. The firm has about $30 billion in assets under management.
Given the fact that the IPO occurred before the fall market drop, Tucker said that Waddell & Reed considers its offering fortunate. "It turned out perfectly, because shortly after we went public the market for asset management companies went down."