Mutual fund company Van Kampen American Capital is reportedly on the block, but the supposed $1 billion asking price has most of the nation's largest banks shying away from the deal.
Investment bankers named NationsBank Corp., First Union Corp., BankAmerica Corp., Chemical Banking Corp., and Wells Fargo & Co. as examples of banking companies with the capital and ambitions to acquire a large fund house.
But they said these banks aren't willing to pay as much for a property like Van Kampen American Capital as a rival insurance or mutual fund company would.
"All of these big banks have looked at all the properties that have come on the market, but none have bid aggressively," said one investment banker at a top securities firm.
While banks have talked openly in recent years about buying their way into the fund business, their reluctance to outbid rival financial services firms raises questions about the industry's commitment to become a major presence in the business. Banks now manage about 14% of all U.S. mutual fund assets.
"Banks are more skeptical about this business than they were two to three years ago," the investment banker said.
Most mutual fund companies go for 10 times their pretax profits, but banks seem to stop at eight times - getting easily outbid by their rivals, he said.
Banks must justify their acquisitions to shareholders, many of whom are obsessed with quarterly earning results.
But in the case of Van Kampen, the purchase price includes $500 million to $700 million in goodwill, an intangible asset that measures the value of a company's reputation and brand name. Because goodwill must be written off over time, it will have a negative impact on earnings.
"One bank on that list is intrigued, but is scared by the goodwill," said another source at a large investment banking house.
Banks may also not want to assume the $500 million in debt on Van Kampen's books for the 1994 acquisition of American Capital Management and Research, investment bankers said.
Based in Oakbrook Terrace, Ill., Van Kampen, which manages $37.8 billion in fund assets, is owned by Clayton Dubilier & Rice, a leverage buyout firm in New York.
The firm reportedly hired Goldman, Sachs & Co. to help it find a buyer.
Neither the mutual fund company nor its investment banker would comment.
Mellon Bank Corp. is the only banking company that ever coughed up more than $1 billion for a mutual fund company. In 1994, the Pittsburgh-based bank acquired Dreyfus Corp., a New York-based bond-fund house, for $1.8 billion.
Acquiring Van Kampen would mean capturing a menu of 36 portfolios, which mostly invest in domestic stocks and bonds.
"There are few opportunities of this magnitude," said Jeffrey D. Lovell, principal of Putnam Lovell & Thornton, an investment banking firm that specializes in acquisitions of money management firms.
But banks may also be shying from Van Kampen for reasons beyond price, sources say. Despite the firm's breadth, the bulk of its sales last year were in Prime Rate Income Trust, an interest rate sensitive fund that invests in corporate loans.
During the first 11 months of last year, Prime Rate Income Trust made up 38% of the firm's $5.6 billion in sales.
And one investment banker added the firm's growth has been slow compared to competitors. Of the top 20 largest fund firms, Van Kampen's growth rate ranks 15th, he said.