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Affiliated Managers Group’s Leveraged Balance Sheet for Expansion

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Less leveraged balance sheet

Affiliated Managers Group’s (AMG) senior debt declined, and total stockholder equity, senior notes, and cash and equivalents rose in 4Q15 compared to 4Q14. The company deployed cash to buy back its stock and repay its liabilities.

Affiliated Managers Group’s net debt as of December 31, 2015, stood at $10.3 billion compared to $10.4 billion on December 31, 2014. Overall, AMG’s leverage was comfortable, as it fell marginally to 0.42x compared to 0.44x on December 31, 2014.

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Affiliated Managers’ total assets rose to $7.8 billion in 4Q15 as compared to $7.7 billion in 4Q14. AMG leverages its position by offering a unique combination of investing in boutiques with experience and a large base of assets. Customized and alternative offerings could attract substantial capital in low-performing markets.

Operating margin

Affiliated Managers Group (AMG) reported a healthy operating margin of 34% in the last fiscal year. In comparison, its competitors reported the following margins:

  • BlackRock (BLK) reported 40%
  • T. Rowe Price (TROW) reported 47%
  • Bank of New York Mellon (BK) reported 23%

Together, these companies form 0.66% of the SPDR S&P 500 ETF (SPY).

Interest cost

In 2015, Affiliated Managers Group (AMG) closed $1.3 billion in five-year unsecured revolver credit and a $350 million term loan to fund three new investments with Systematica Investments, Abax Investments, and Ivory Investment Management. The company also called off its $140 million senior bonds. It expects that the impact of these transactions will not raise leverage substantially. However, this could reduce its overall interest cost. The funding of new investments is expected to drive interest costs higher to $22 million in 1Q16.

In 2016, the company is expected to have $800 million in capacity under the revolver combined with a run-rate EBITDA (earnings before interest, tax, depreciation, and amortization) of approximately $1 billion.

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