$294M deal will take fund manager private as other wealth firms go public

An asset manager backed by the owners of the Buffalo Bills and Sabres is taking a fund company private in a deal marked by regional flavor and a sizable price tag.

Callodine Group is buying Fairport, New York-based asset and wealth manager Manning & Napier for $293.9 million, a price of $12.85 per share. Callodine gets its name from a street where CEO James Morrow used to live in Buffalo, and the family office of Terrence and Kim Pegula, East Asset Management, is a passive investor in funds managed by the acquiring firm.

The Manning & Napier deal reflects a smaller number of publicly listed firms, as wealth managers like Ladenburg Thalmann have gone private in M&A transactions in recent years. On the other hand, pending IPOs for Dynasty Financial Partners and CI Financial’s U.S. wealth business show that other firms are taking the opposite tack. In the case of Callodine’s deal, the Western New York ties extend beyond being Sabres and Bills fans to the fact that Morrow also grew up in Rochester close to Manning & Napier’s headquarters.

“It’s a firm that personally I've had an eye on for 20 years. I’ve been a student of the company since its IPO,” Morrow said in an interview. “Once I sat down and spoke to [Manning & Napier CEO] Marc [Mayer] about the company and how he viewed the business, our take was there was a real alignment of values and focus, so there's a conversation to be had here.”

After announcing the deal on April 1, Callodine and Manning & Napier expect it to close in the third quarter, pending shareholder approval and other conditions. Manning & Napier has more than 275 employees and $22.5 billion in assets under management across equity, bond and blended-asset funds, according to its most recent earnings statement. In 2021, its revenue jumped by 15% to $145.6 million while its pretax income soared by 140% to $33.1 million.

Manning & Napier has relationships with thousands of advisors through what Mayer describes as “globally diversified, dynamically allocated multiasset portfolios.” A $1 million investment in Manning and Napier’s flagship long-term growth fund at its inception in January 1973 would today be roughly $96 million after fees, according to Mayer. The direct deal talks began last fall.

“There's nothing wrong with being public, but being private is really a very good way to operate. You can have the longest of perspectives in doing so,” Mayer said. “We’ve made some important progress, but we have plenty of work left to do.”

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The per-share price of the transaction values Manning & Napier at 41% above its March 31 closing price and a 55% premium on the firm’s volume-weighted average price for the last three months. Wealth management M&A transactions continue to boost seller valuations, though transaction multiples aren’t rising as fast as previous years.

Dynasty and CI Financial’s U.S. wealth arm would follow Focus Financial Partners and Kingswood’s special purpose acquisition company among recent additions to the ranks of publicly listed companies in wealth management. Other firms such as Beacon Pointe Advisors and the Wealth Enhancement Group have remained private after receiving respective investments from publicly traded companies Onex Corporation and KKR. Between 2000 and 2020, the number of publicly traded companies shrank by 27% to about 4,000, although exits and entries were roughly equal since 2010, according to an analysis by McKinsey & Co.

“In this market, the opportunity is very significant for publicly traded wealth and asset managers to look at going private because of where valuations are in those businesses,” said John Eubanks, a director with investment bank Park Sutton Advisors who represents RIAs on M&A deals. Valuations have reached as much as 15 to 20 times a firm’s EBITDA, Eubanks noted.

Upon completion of the Manning & Napier deal, Mayer will remain CEO and receive a salary of $600,000 per year with eligibility for a cash bonus between $3 million and $3.5 million in 2022 and an employment termination clause with cash severance of $5 million plus vested awards, according to a March 31 SEC filing. Under a rollover concurrent with the merger agreement, Mayer will contribute hundreds of thousands of shares of company stock and options in exchange for equity interests and options in the firm’s new parent.

In addition at the close, the Pegulas’ family office has agreed to capitalize Manning & Napier’s new parent with an equity contribution of nearly $149 million, the proxy filing states. The family became billionaires in the oil and gas industries, and they also own the Buffalo Bandits and Rochester Knighthawks professional lacrosse teams and the Rochester Americans minor league hockey team. East Asset, the family office, is a strategic investor in Callodine, which manages more than $2 billion in assets across a variety of yield-focused funds and strategies.