Since becoming Virtus Investment Partners Inc.'s president and CEO more than five years ago, George Aylward has taken a judicious approach with M&A opportunities, eschewing deals that may look attractive on paper for ones more in-line with the company's long-term growth and diversification strategy.
To that end, Virtus' planned acquisition of RidgeWorth Investments, a multiboutique asset management company with $40.2 billion in assets managed by affiliated investment managers and unaffiliated subadvisers, fits Aylward's selective criteria. In particular, Virtus is attracted to RidgeWorth's portfolio of fixed-income assets due to its broad capability to attract a variety of investors across both ends of the risk spectrum. Upon completion of the deal, the pro forma company is expected to have $37.96 billion in fixed-income AUM.
Aylward on a conference call to discuss the transaction emphasized that the new company is positioned to capitalize on growth opportunities regardless of the rate environment, but also highlighted RidgeWorth's ability to operate in a backdrop colored by rising rates.
"We think their experience in terms of dealing with environments where there are rising interest rates, and looking for value and opportunity stood out," Aylward said.
There were other key factors driving the combination. Virtus anticipates the transaction resulting in cost synergies of $25 million per year, with 85% of such synergies expected to be realized within the first 12 months of closing. In many cases, Aylward said comparable, if not identical, support services in place at each company provide opportunities for further consolidation. As a result, Virtus projects EPS accretion of at least 15% to its 2017 and 2018 outlook. In terms of tax benefits, Virtus expects to experience annual tax expense savings of $10.8 million.
Aylward also deemed RidgeWorth's investment strategy among institutional accounts as an attractive selling point. According to Virtus' projections, the pro forma company is expected to have $26.60 billion in institutional account assets. The vast majority of those assets, $20.60 billion worth, is coming from RidgeWorth.
Virtus has not made any projections for potential revenue synergies in the post-merger period, said Michael Angerthal, Virtus executive vice president and CFO.
Virtus expects the transaction to close in mid-2017.