What's up with Invesco offloading its $20-billion RIA/trust firm to a Canadian bank -- and at a bargain price?

After being approached out of the blue, Invesco Ltd. sold Atlantic Trust Private Wealth Management for what appears to be a bargain price after the high-net-worth advisory unit had a long period of stagnant growth but good profitability.

The Atlanta-based mutual fund giant, with $700-billion-plus of managed assets, agreed to sells its RIA-and-trust-company roll-up-like venture for $210 million to the Canadian Imperial Bank of Commerce, Canada’s fifth-largest bank.

Atlantic Trust manages approximately $20 billion in assets on behalf of its clients through 12 metropolitan locations across the United States. The roll-up of Pell Rudman Trust Co., Stein Roe Investment Counsel and Whitehall Asset Management serves high-net-worth individuals, families, foundations and endowments through a staff of 235 people. The company has $7 billion of managed assets on its ADV through its Stein Roe subsidiary. The remaining $13 billion are presumably trust assets. See: How being a $19-billion family office roll-up owned by a bank finally caught up with GenSpring.

Surprise move

Investment bankers in the RIA realm say they were caught off-guard by the deal because there was no chatter about Atlantic Trust being on the block. They were also surprised that the unit sold for a such a low multiple of earnings given its stature.

“CIBC acquired the business at an attractive valuation,” says David DeVoe, principal of DeVoe & Co. “Seven times cash flow is low for a $20 billion organization with 26% margins — and is about 30% less per dollar of assets than what Invesco paid for Stein Roe’s $7 billion in AUM 10 years ago. I would have thought nine times EBITDA for an organization of that size.”

In 2003, Invesco paid $117.5 million for Stein Roe, including 60% in cash and the remaining 40% in AMVESCAP PLC (then Invesco’s parent company) ordinary shares, plus an additional payment of $43 million contingent upon client retention targeted revenue growth.

Not totally dollar-driven

Another M&A specialist in the wealth management realm who asked not to be identified because of his closeness to the deal echoed those thoughts. He added that the likely reason Invesco went along with a lower multiple was that Atlantic Trust’s upper management demanded that it work with a quality organization.

An Invesco spokesman declined to comment. But Invesco’s chief investment officer, Loren Starr, during a follow-up call with Wall Street analysts, made comments consistent with the viewpoint that the deal was not purely driven by dollars paid.

“It really was not something that we were out looking for — to sell the business,” he says. “I think we were really pleased to see a partner [going] forward that made sense for the client, and so that’s what drove the timing and continues to drive the timing of how these are going to close. You can try to market-time things so you get exact maximum value, and that just doesn’t work in transactions like this.”

(Note: Subsequent to the publication of this article, two different New York sources reached out to us to say that AtlanticTrust had been very much on-the-block previously. One email said: “It was actually put in play by a large trust bank last year, was on the block for a while and had multiple buyers try and fail to buy it. The only surprise was that it seemed IVZ decided to pull the plug after they couldn’t get their price but then reversed course again.”)

The M&A specialist who asked not to be named added that the deal seems to make sense for Invesco, even if it didn’t squeeze every penny out of the divestiture. See: 10 fund wholesalers and executives offer views about how they seek to add value for RIAs.

He points out that Invesco’s strategic orientation — once primarily institutional — changed profoundly in 2009 when it made a deal to acquire the $119 billion of AUM in the asset management business of Morgan Stanley.

Those assets include the Van Kampen funds as well as one branded under the Morgan Stanley brand, and $119 billion in assets under management across equity, fixed income, alternatives (including mutual funds and separate accounts) and unit investment trusts. Invesco expanded by approximately 650 investment, distribution and operations support professionals globally. The transaction was valued at $1.5 billion, including cash and stock that provided Morgan Stanley a 9.4% equity interest in Invesco.

The Invesco tale as told by
its retail, institutional and private wealth
management AUM mix.

'Attractive entry’

Though Atlantic Trust contributed 3 cents per share to quarterly earnings each quarter, it was not an area of exciting growth for Invesco. When Invesco acquired Stein Roe in 2003, Atlantic Trust had $16 billion of assets — an amount that has grown only 20% in a decade.

Still, in 2012, Atlantic Trust generated $1.9 billion of long-term net flows — roughly 15% of its total in that category, according to the company.

Victor Dodig, a senior executive vice president at CIBC and group head of wealth management, expressed pleasure with the deal.

“Atlantic Trust provides CIBC with an attractive entry into the U.S. private wealth market, where high-net-worth personal financial assets are growing 50% faster than those of the average U.S. household,” he says.

It’s not the first time a Canadian bank had an eye for a big U.S.-based RIA.

For instance, Harris MyCFO is now owned by Bank of Montreal, which has continued to fund that roll-up. See: An $18-billion RIA tacks on a $24-billion U.S. Trust cast-off as the grab for UHNW magnets continues.