For all their hopes of succeeding in the money management business, banks have had some high-profile problems assimilating the firms they have bought. Investment banker Mary Pat Thornton says she thinks she knows why.
Several leading banks, she says, have tried to impose their own investment strategies and compensation systems on newly acquired money management units.
Yet these companies, which manage large asset pools for both institutional clients and wealthy individuals, are attractive to banks in the first place because of their entrepreneurial streak. By failing to respect their need for independence, banks risk driving away top talent.
"Money managers aren't indentured slaves," Ms. Thornton says bluntly. "You can't force someone to come work for you." Indeed, she said, some money management firms don't even want to negotiate with banks.
Ms. Thornton knows what she's talking about. For the past seven years, the 47-year-old investment banker has made a specialty of advising clients interested in buying and selling investment management companies.
Along the way, her boutique firm - Putnam, Lovell & Thornton - has become one of the country's three leading M&A advisers in an industry that is the midst of consolidation. The firm, which started as a one-man operation in 1987, has grown into a company with a staff of 30 in offices in Los Angeles, San Francisco, and New York.
And Ms. Thornton, the partner who runs the firm's New York office, has emerged as one of the few prominent women in a business dominated by men.
Today, Ms. Thornton and her two California-based partners - Donald Putnam and Jeffrey Lovell - are working to outmuscle such rivals as New York-based Berkshire Capital Corp., another specialist in M&A for money management firms, and the mighty Goldman, Sachs & Co.
Ms. Thornton says her firm is standing up to the competition just fine.
"Of the investment management deals last year valued at over $50 million, we were involved in nine and Goldman was in six," Ms. Thornton says. And yet, she says with obvious dismay, "everybody thinks that Goldman is eating everybody else's lunch."
At stake for these M&A matchmakers is an ever-expanding market of acquisitions involving money management companies.
Since 1987, when Mr. Putnam, a former SEI Corp. money management consultant founded the firm in Los Angeles, there has been a phenomenal rise in both the number and size of mergers involving money management firms.
This trend has been buoyed by a number of factors, including changing economics that is making it increasingly difficult for smaller companies to remain profitable - along with more money management firm founders reaching the "sellout" stages of their lives.
From 1990 to 1995, the annual number of deals involving money management operations jumped from 26 to 55, according to statistics provided by Putnam, Lovell & Thornton. And the average size of a money management target grew in that time from $2.3 billion in assets to $7.6 billion.
In recent years, several leading bank companies, including Mellon Bank Corp., Signet Banking Corp., and Northern Trust, have bolstered their money management profile through acquisitions.
While her firm has done little with banks eager to acquire money managers, Ms. Thornton says she currently is representing three banks interested in acquiring money management units.
She acknowledges, however, that "there is a reticence" on the part of many money managers to being acquired by bank holding companies. It's understandable, she says, given the scare stories about other money managers who have failed to mesh with their bank overlords. Mellon Bank Corp. and SunTrust Banks, for example, have endured the embarrassment of highly publicized defections in their money management units.
'And no bank wants to buy a money manager and destroy the value that has been created," she said.
While U.S. banks have shied away from purchasing both retail and institutional asset managers in recent years - being unwilling to pay prices of at least 10 times pretax earnings - Ms. Thornton says she expects that foreign commercial banks will continue to be major acquirers in coming years.
"They want a foothold in the U.S., and they know they have to buy it, they can't build it," she says.
All this newfound global interest in money management firms has interested a slew of investment banking houses.
Indeed, several other players, including Lazard Freres, Merrill Lynch, and First Boston, are working to break into the club of money management M&A specialists. "Everybody is trying to get into the picture," says Milton Berlinski, the head of Goldman's asset management team.
Competing against the "bulge-bracket" investment banking houses like Goldman has its challenges for Ms. Thornton's firm. Besides being the premier name in the investment banking business, Goldman Sachs can raise debt and equity capital for a client, a capability that Putnam, Lovell & Thornton lacks.
But the firm, which works to find merger partners for both buyers and sellers, also has a distinct competitive advantage - its sole focus on money management deals.
All three partners - unlike many investment bankers that are now trying to stir up money management M&A deals - come from the world of money management.
The partners all worked together for SEI Corp.'s money management consulting business in the 1980s. Ms. Thornton was a senior consultant advising money management companies in the Northeast.
Says Richard Chimberg, editor of Boston-based Investment Management Weekly, "She knows the issues that investment managers go through on a daily basis because she dealt with them as a consultant."