Fleet Financial Group, moving swiftly on a pledge to become a force in asset management, is preparing to buy an Oregon firm that manages some $20 billion in mutual funds and institutional assets.
Sources close to the talks said Wednesday that a deal for Columbia Management Co., Portland, was imminent. Fleet has agreed to pay approximately $600 million, including $400 million in cash up front, one source said.
The transaction would boost Fleet's assets under management by 40%, to about $70 billion. That would put the Boston-based banking company on track in its plan-outlined last week by Thomas M. O'Neill, president of its investment advisory arm-to amass $100 billion within five years.
The deal for Columbia-whose assets include $6.1 billion in mutual funds- would also give Fleet a big lift in that coveted corner of the investment management business. Fleet, which already manages the $11.1 billion Galaxy Funds, would vault to eighth place among bank fund managers, from 15th as of June 30.
Fleet executives declined to comment on the deal, which was reported Wednesday by USA Today, and calls to Columbia were not returned by deadline.
The deal, coming on the heels of a July 31 mutual fund deal by J.P. Morgan & Co., could mark the return of banks as serious contenders for asset management companies. With the prominent exception of First Union Corp., U.S. banks have sat on the sidelines over the past two years as rivals have snapped up asset management companies and mutual fund specialists.
Now, said one investment banker, "Banks are everywhere. They're banging down my door." This dealmaker, who spoke on condition of anonymity, said he expects to see a surge in acquisitions by banks.
But one observer said banks may have already missed the best opportunities.
"The challenge facing banks looking to acquire these firms is that they're late," said Geoffrey H. Bobroff, a mutual fund consultant in East Greenwich, R.I. Only a handful of possible acquisition targets are available that are big enough to significantly boost a bank's asset management business, he said.
The investment banker, however, said the deal is a smart move for Fleet, bringing it a top-performing mutual fund company at a good price. Fleet's last mutual fund acquisition was in June 1994, when it bought the $642 million-asset mutual fund management arm of International Business Machines Corp. for $14 million.
In addition to the $400 million cash payment, Fleet's deal for Columbia calls for it to make payments over time based on Columbia's performance and management retention, according to a person familiar with the negotiations. The price is in line with other recent acquisitions, industry observers say.
Columbia would retain its independence from the bank and its Galaxy Funds, and report directly to Gunnar S. Overstrom, vice chairman of Fleet, the source said.
The Columbia Funds are sold to investors without a middleman, while Fleet's funds are sold through brokers, who collect an up-front fee, or "load," for rendering investment advice. The bank previously sold no-load funds and may use the deal as an opportunity to revisit the issue, said Betsy Connolly, president of Funds Distributor Inc., Boston.
