US investment manager Federated Investors has signed an agreement to acquire a majority interest in Hermes Fund Managers, which operates Hermes Investment Management, from the UK’s largest private-sector retirement fund BT Pension Scheme (BTPS).
Upon closing, Federated will pay £246 mln (€285 mln) to BTPS for a 60% interest in Hermes.
Federated will fund the transaction through a combination of cash and an existing revolving credit facility.
BTPS will retain a 29.5% share in the London-based fund manager and will continue to invest in Hermes’ strategies as a client. Certain members of Hermes’ management will hold an aggregate 10.5% interest in Hermes.
The transaction is expected to be completed during the second half of 2018.
Hermes manages £33 bn of assets across 16 strategies in high-active share equities, credit and private markets, including real estate, infrastructure and private equity, serving more than 550 clients through wholesale and institutional markets. Hermes also advises £336.1 bn through its Hermes Equity Ownership Services (EOS) division.
Hermes’ headquarters will remain in London, operating as a subsidiary of Federated Investors. Upon completion of the transaction, Hermes will retain its own board, chaired by an independent non-executive chairman, comprising representatives from Federated, BTPS and Hermes’ executive leadership, as well as two further independent non-executive directors.
After completion of the transaction, Federated will have the opportunity to purchase and BTPS will have the option to sell additional shares of Hermes from BTPS over the next three to six years pursuant to certain put/call provisions.
'The agreement with BTPS brings to Federated great people, a growing global client base, a history of strong performance and one of the world’s leading active ESG investment and engagement businesses,' said J. Christopher Donahue, president and chief executive officer of Federated Investors. 'This is a growth opportunity for both Federated and Hermes, with Hermes’ range of investment strategies serving as effective complements to Federated’s existing strategies in equity, fixed income and cash management. In addition, Hermes’ capabilities and client relationships in the U.K., the rest of Europe and the Asia-Pacific region significantly broaden Federated’s distribution capabilities.'
Paul Spencer, chair of the BTPS Trustee, said, 'Hermes has delivered excellent investment performance and stewardship to the Scheme over many years, operating initially as our in-house manager and in recent years, building on this capability to develop a strong multi-client business. This transaction is the next step in the evolution of Hermes, as it continues to expand its global business.'
The combined organization would have £328 bn in assets under management.
In the agreement, Federated’s lead financial advisor was Citigroup Global Markets, with additional representation from Barclays Capital; BTPS was represented by PwC and Allen and Overy; and Hermes was represented by Fenchurch Advisory Partners.