[Through the Glass Door] The iShares / Barclays Global Investors Sale: What Are Buyers Buying?

Earlier posts highlighted the quandry – sort of like long not-so-pleasant twisting in the wind – that the apparent shopping of iShares and Barclays Global Investors by parent firm Barclays PLC is having on those organizations and their employees. Having done M & A work, it can’t be fun at either iShares or BGI, and it can’t be very productive either: water cooler talk is likely high, and productivity is likely to be very low. For would-be buyers, though, there are least four questions I’d want answered:

  1. Just what are you buying? BGI’s assets have shrunk from $2.0 trillion to $1.5 trillion with the fall of the equity markets last October so you’re buying fewer assets than before the fall. Employees who received stock option grants in the early part of the year 2000-initiated equity owner ship plan (EOP) and have not exercised those options will have plenty of cash to make and likely little material incentive to stay. Employees who have more recent option grants will have little or no value in the grants, and can stay or leave without much impact upon them. There has been a hemorrhaging of talent on the non-iShares BGI side, as key people from the sales, infrastructure and investment side have all left in the last 18 months. If you’re buying the deal in part because of the talent, what are you going to do to ensure they actually stay, and who exactly do you think is still there?  On the iShares side, while the talent has stayed, how are you going to keep them once a deal is done?
  2. What are you going to keep, and what are you going to divest? If it’s a private equity firm doing the deal, the likely result is that there is no merger of people or infrastructure since it would be more likely to be a standalone purchase. But if it’s an acquistion by folks rumored in the hunt such as BlackRock or Bank of New York – Mellon, then there is likely infrastructure to consolidate. There may also be funds to keep or drop: how many funds do you want to offer, where are the overlaps, and where are the opportunities?
  3. What’s the reason why clients will stay? While any number of clients have defined investment period terms and lock-ups, others may not: that means that some clients may walk unless you’re offering an incentive for them to stay. And while volume is always great, you may have clients who had funds in both BGI and the acquiring firm may want to mitigate their risk and pull funds out to invest with another investment manager.
  4. If it’s an acquisition and merger, how are you merging and how are you managing the merger? The list of successful mergers, if you define success as additive value to shareholders, is pretty short. Successful mergers where talent acquisition is part of the deal – outside of someone like Cisco being involved – is even shorter. In these cases it’s not doing the deal which is hard, but making the deal work which is the tough nut to crack. You should have people on board who are both familiar with the business, competent in mergers, and know how to read both sets of cultures and organizations.

More to come – and June 18th, when the deal will apparently be done – is a long time away.