Artemis buyout hopes fade

Mark Tyndall and John Dodd, founder managers of Artemis, the Scottish fund manager that merged with ABN AMRO six years ago, face an uphill struggle to lead a management buyout of the business following the dramatic rescue of Fortis last week.

The Benelux bank was one of three lenders that came together to buy ABN AMRO for €71bn just under a year ago. Fortis picked up the domestic activities of the group, which included its private banking and fund management activities.

However, after a complicated series of state-sponsored moves by the three respective Benelux governments, Fortis has been broken up over the past fortnight.

ABN AMRO’s domestic banking business is now owned by the Dutch state and the fund management business looks likely to be majority owned by BNP Paribas, according to a source familiar with the matter.

Shortly after the sale of ABN AMRO was agreed last year, Artemis’s managers started to explore a possible buyout of the business, in which they still retained a 32.9% stake, from Fortis.

However, the developing credit crisis delayed these negotiations, which valued Artemis at a putative £1bn (€777m). Talks were also complicated because Fortis struggled to take formal control of the ABN AMRO assets it had agreed to buy.

On September 30, a day after Fortis first said that the three governments had invested €11.2bn in return for a 49% stake, the group said that it had taken full control of Artemis, buying out the stake of the division’s managers for £317.2m.

Fortis said this “step-up investment” from 67.1% “was pursuant to a prior contractual arrangement with Artemis management shareholders”. This gave the latter the right to sell at a price determined last year if its parent underwent a change of control.

Fortis said Artemis management remained “fully committed to the business”, adding that both parties were “in close dialogue regarding future strategic options for Fortis’s interests in Artemis”. A source confirmed that a buyout had been considered.

One local adviser said that one proposal had been received from “a private equity bidder to buy the business without debt, using only equity, with a view to building the business”.

The adviser said that a syndicate of investors would have to be arranged to complete such a deal, with a value of £964m, based on what Fortis paid for its minority stake last week.

However, it is believed that the recent turbulence will price any deal far below that level.

In July, Apax founder Sir Ronald Cohen and US bank Jefferies backed the buyout of ABN AMRO’s hedge fund business, International Asset Management, for an estimated €200m. ING provided loan financing.

Jefferies’ asset management advisory arm Putnam Lovell said that there were 69 deals in the sector worth US$6.4bn during the three months to the end of September, up from 52 valued at US$6.1bn in the same period last year.

“Tremors transforming the global financial landscape have served as a catalyst to asset management deal flow,” said Aaron Dorr, managing director at Jefferies Putnam Lovell

“In the short-term, we expect more banks to retreat from owning money managers and private equity firms to step up their growing involvement in the sector.”

Allen & Overy advised Fortis on its purchase of the Artemis minority stake.