Invesco has entered into a definitive agreement to acquire European ETF issuer Source.
Martin Flanagan, President and Chief Executive Officer of Invesco.
The transaction will add Source’s $25 billion in assets under management to Invesco’s existing global ETF AUM of approximately $120 billion.
The acquisition will transform the firm’s presence in the European ETF market, as well as diversifying its ETF AUM base – roughly 40% of its ETF AUM currently resides in its blockbuster Nasdaq 100 ETF, the PowerShares QQQ.
Source’s AUM includes $18bn in internally managed ETFs, much of which are swap-based, plus approximately $7 billion in externally managed funds, including a significant chunk with fixed income specialists Pimco.
“We’re excited about this opportunity to build on Invesco’s 40 years of factor investing experience and our existing PowerShares ETF business, which will significantly enhance our ability to deliver meaningful solutions to institutional and retail clients in Europe and around the world,” said Martin L. Flanagan, president and CEO of Invesco. “The addition of Source will help us meet increasing demands from clients who want to work with investment organizations that can deliver across the full range of investment capabilities and provide the outcomes they seek.”
According to Invesco, the acquisition fits with the company’s strategic priorities globally and in EMEA, and will benefit clients through expanding its offering of factor-based strategies – Source’s product line-up includes a couple of Goldman Sachs Equity Factor ETFs and a trio of FTSE RAFI Equity Income ETFs, among others – enhancing the firm’s ability to service institutional and retail clients through a more diverse range of on-the-ground ETF specialists, and strengthening its position in EMEA through additional scale and relevance.
Industry expert Deborah Fuhr, managing partner of ETFGI, said the acquisition would propel PowerShares from the 17th ranked firm in European ETFs/ETPs with $2.56bn in AUM, to 7th ranked in Europe with $26.82bn and a 4.2% market share (based on March 2017 month-end data). She added that the number of products for PowerShares in Europe would rise to 101 after the acquisition, from 18 currently.
Mike Paul, Executive Chairman of Source, said: “Invesco and Source are extremely complementary, and the combined business will be a true leader in the ETF market across Europe. We are very proud to have built Source into one of Europe’s most competitive and innovative ETF providers with some of the most compelling products in the market. Our drive for new product excellence will remain at the heart of the combined business.”
Serial ETF entrepreneur and former Co-CEO of WisdomTree Europe, Hector McNeil, said: “[the] purchase would make some sense for Invesco, which has struggled to gain the same traction it has in Europe that it has achieved in the US. Source will provide it with a more vanilla offering than it has already, which is more smart beta focused, and should minimise the overlap. It also shows clearly how important it is for global ETF providers to have significant operations in both the world’s largest and second largest ETF markets.”
Source, which is believed to have struggled to achieve profitability, was put up for sale back in October 2016.
Prior to the transaction, its shareholders included majority owner Warburg Pincus, a private equity firm, along with a group of investment banks including Goldman Sachs and JP Morgan, plus a number of former senior founding employees.