GAM: The Toxic M&A Object

With Friedman now fighting to wind down the absolute return bond business, return investor money, and keep the rest of GAM’s business going, the company is an unappealing target, investment bankers say.

«Guessing Game»

The problem, they say, is that GAM is the investor’s classic «falling knives» scenario: the company’s troubles are still shrouded in too much mystery for buyers to make an informed decision about its value.

«How big are second-half outflows going to be? What about profitability? Trying to figure out their run-rate profitability is essentially a guessing game,» the banker said.

Another vulnerable spot for GAM is Cantab, a Cambridge-based systematic trading firm which the Swiss asset manager acquired in 2016. Friedman has already taken a 59 million franc ($60.1 million) write-down against Cantab. The company was supposed to be a showcase within GAM, but is bleeding assets, it said in June.

Mired in Uncertainty

Potential acquirers of GAM will shirk the potential reputational fallout, the banker said. «Even after falling as much as it did, it’s still not cheap to buy, especially factoring in a deal premium,» the person said.

Investment bankers say they fear more is to come from Cantab, and note that GAM still hasn’t entirely come clean about the Haywood troubles either. GAM also faces uncertain prospects in the winding-down of Haywood’s portfolio of funds – essentially a distressed sale where asset buyers have the upper hand.

Hedge Fund Attack

The difficulty in selling GAM given its size, track record, and strategic strengths was illustrated last year when Zurich-based hedge fund executive Rudolf Bohli (pictured below) mounted an attack.

«He was clearly seeking buyers, but nobody jumped on the case in order to see it through,» the banker said. Then, the stock was trading between 13 francs and 14 francs – with a far clearer and more promising outlook.

Now, at 8 francs to 9 francs, GAM is cheaper, but what trade buyer will even pony up the 1.4 billion francs given the asset manager's manifold uncertainties?

That's an equation for GAM's biggest shareholders – among them Silchester Investment Managers with 15 percent; Kiltearn Partners, which is closely associated with Sihlchester, with 5 percent; and T. Rowe Price, also with 5 percent.