Estancia’s Principals believe that favorable asset management industry dynamics and attractive business characteristics, combined with recent market dislocations provide compelling opportunities to generate exceptional performance as measured by MOI and IRR.
- Favorable Industry Dynamics: U.S. asset management industry is a large and fragmented industry managing AUM estimated to exceed $20 trillion generating annual revenue in excess of $125 billion. Estancia estimates there are over 1,500 firms in the U.S. managing greater than $100 million and approximately 60% are privately owned.
- Attractive Company-Level Economics: Asset management firms are characterized by substantial recurring revenue, high operating leverage, scalability and nominal capital requirements. Furthermore, high EBITDA margins are achievable at relatively small scale AUM.
- Catalysts Driving Opportunities: Estancia anticipates numerous, high-quality investment opportunities stemming from: (i) management teams seeking capital for the buyout of their businesses from larger financial firms/parents; (ii) parent companies looking to quietly divest “non-core” businesses; (iii) the need to transition private firm ownership from one generation to another; and, (iv) smaller firms pursuing growth initiatives.
- Limited Competition: Historic strategic buyers (banks, insurance companies and investment banks/brokers) continue to divest investment to focus on “core” businesses and raise capital. There are very few financial sponsors focused on this industry and even less, that invest in small to lower middle asset management companies.
- Attractive Valuations: Reduced competition from both strategic and financial investors has driven valuations to the low end of the industry’s historical range.