There was an interesting merger announced last week between a private equity firm (Northern Lights Ventures) and a firm (Echelon Capital Partners) which has primarily provided distribution services to boutique asset managers (they also provided small amounts of capital as well).
What caught my eye was this unique value proposition – investing in an asset management firm with a minority stake but then providing help on the sales and marketing side to help them grow. The idea makes perfect sense – proactively helping the firm with its marketing efforts without taking a majority role serves the purposes of both paries.
From an investment point of view, the new firm is helping grow its investment. And from the prospective of their partner firm, they receive help in areas where they may not be experts without having to give up control of the business.
I have thought for a long time that the asset management area would see a lot of mergers, particularly among small- and mid-size managers. I still believe this will be the case. But this latest deal adds an interesting twist into the types of mergers that we may see move forward.
I had concentrated on mergers that would help two firms become more operationally efficient, especially in light of reduced AUM as a result of the markets over the past few years. This latest deals broadens the spectrum of deals that may indirectly affect the money management industry.
The deal on its surface makes perfect sense. The proof will of course be in the execution of the strategy. But I think a lot of people will be watching the new firm to see if it is successful; if it is, it may be the first of a number of similar types of hook-ups that add an interesting business line to private equity firms.
