AMG: Sale of Veritable Has Less Impact on Our Fair Value Estimate Than Rising Equity Markets

We do not expect to alter our $159 per share fair value estimate for narrow-moat-rated Affiliated Managers Group AMG following news the firm is selling its equity stake in Veritable, which provides wealth advisory services to ultra-high-net-worth individuals and families, to Pathstone Family Office, another advisory firm offering customized investment advice for families, family offices, and foundations and endowments, for $294 million. While AMG will be relinquishing a business with $17 billion in assets under advisement at the end of May 2023, the company’s pursuit of wealth management firms over the past decade always seemed to be more of a side project rather than a whole-hearted effort to replicate its boutique asset management model with wealth managers and advisors, with the income from the stakes that AMG did take in advisors and wealth managers reported as equity method earnings.

We expect most of the ongoing earnings from Veritable’s operations will be more than offset by the runup that we’ve seen in equities since our last update, which will be beneficial to AMG’s base management fees and is the main reason we expect to keep our fair value estimate in place. That is unless something more dramatic comes through when the company reports its second-quarter earnings later this month. Management expects to use the gross cash proceeds from the Veritable sale to repay debt, fund future growth initiatives, and repurchase shares. We expect to incorporate the effects of the transaction into our valuation ahead of the company’s earnings release, given that we have already seen a fair number of details about how the June quarter went for firms that have reported their monthly levels of assets under management or that have already reported second-quarter earnings, allowing us to triangulate AMG’s expected results.