Shares of Waddell & Reed Financial Inc. spiked enormously 48.44% in AH trading to $25.25 after a slight surge of 0.83% during the regular session in the previous close, following the news of a $1.7 billion deal has been signed by Macquarie Group Ltd. to takeover Waddell & Reed Financial Inc. inline to broaden its U.S. wealth management business.
The Sydney-based bank said that the deal would reportedly add $68 billion wealth management unit of Waddell & Reed to Macquarie’s U.S. investment management arm. The merger will push it into the top 25 professionally operated, long-term, open-ended mutual fund managers and giving it the size and scope to compete with larger rivals.
In recent times, asset management has witnessed a surge of consolidation, with businesses reacting to a cut-throat competition squeeze on fees and a move to passive investment management anchored by index fund giants BlackRock Inc. and Vanguard Group Inc. The high tech expenses and regulatory enforcement are also bearing on money managers.
The investment advances its move to more predictable earnings generators for Macquarie. It is heading towards “annuity-style” firms, such as wealth management and financial services, which accounted for about 70% of the first-half earnings, and away from more conventional investment banking companies, such as trading and M&A consulting services.
Macquarie employs about 2,700 people in the U.S., and as of Sept. 30, it managed around $205 billion in assets there.
As profits from the market-facing units slumped 42%, the former contributed almost 70 percent of the first-half profit. The transaction would also further extend Macquarie’s global sector, which in the last half generated about 70% of overall sales, up from around 50% 12 years earlier.