By JASON HOLLANDS 23/11/2001
On the 11th of December, John Duffield's fledgling fund company New Star Asset Management is hosting an industry bash amongst the dinosaurs at the Natural History Museum. The invite points out that the exhibition is titled "Untamed Exhibition in the Year of the Predator". The image of the predator is very apt because New Star are also busy hunting out potential acquisitions.
Following a leak to The Sunday Telegraph, it has been confirmed that New Star is in talks concerning a purchase of Artemis. However, neither company will comment any further at this stage. The price being mentioned for Artemis of £42 million represents some 8% of funds under management, which is near the top of the scale for this type of business.
The deal seems both ironic and odd. Ironic because the Managing Director of Artemis, Jamie Campbell, was one time MD of Jupiter's retail business until there was a "parting of company" with Jupiter's then Chairman.... John Duffield. The deal is odd, not because of the differences between these companies, but because of their similarities. Both are entrepreneurial stock pickers in style and largely owned by the management, but whether Duffield's autocratic management will suit the team players of Artemis is more questionable, especially when the latter would become minority shareholders with limited influence on strategy.
The next concern is the duplication within the fund ranges. Artemis has four UK and 1 European fund, New Star has 2 UK funds (with one more planned) and 1 European fund. It seems inconceivable that a merged group would continue to offer so many funds with overlapping mandates, but if there are mergers there would be no ongoing role for some of the managers.
Finally, there are the geographic problems: Artemis is based in Edinburgh, New Star in Knightsbridge and neither are likely to move, but surely the terms of any deal wouldn't make sense unless significant savings in overheads could be achieved. Although the Sunday Telegraph article suggested an all share deal, we wonder whether a cash exit for the Artemis managers wouldn't make more commercial sense.
For current and potential investors in the Artemis funds some clarification is needed urgently. There seems little point in buying a fund today which might be under different management in a few months' time and where the manager's attention seems likely to be distracted by the negotiations. Therefore, we are suspending our current recommendations for Artemis funds pending further news. For New Star investors there is less cause for concern because a separate layer of management is involved in making acquisitions and because it will be the dominant partner.
On a more general point, we expect to see more fund company mergers over the coming year. Because of weak markets, fund companies are under financial pressure and size does bring economies of scale. Jupiter has just announced its largest acquisition since 1994 in the form of the Fund of Funds business of Lazard. Let's hope that small, entrepreneurial fund companies don't all go the same way as the dinosaurs on display at the Natural History Museum.
Is a New Star acquisition of Artemis a good or bad thing?