Business Context and Reporting Period
Company: Principal Financial Group, Inc. (PFG)
Filing Type: Form 8-K (Current Report)
Date: April 18, 2011
Event: Regulation FD Disclosure regarding a strategic acquisition.
Principal Global Investors, LLC, a wholly-owned subsidiary of PFG, entered into a definitive agreement to acquire a 51% majority stake in Finisterre Capital, LLP, and Finisterre Holdings Limited (collectively, Finisterre Capital). Finisterre Capital is an emerging markets fixed income specialist based in London.
Key Financial Metrics and Transaction Details
- Acquisition Cost: Initial payment of $84.6 million USD.
- Contingent Consideration: Up to $30 million payable in 2013, dependent on performance targets.
- Target Assets Under Management (AUM): Approximately $1.63 billion (as of April 1, 2011).
- Parent Company AUM: Principal Global Investors manages $232.4 billion; Total PFG AUM is $318.8 billion (as of Dec. 31, 2010).
- Capital Deployment Strategy: This transaction is part of a 2011 strategy to spend approximately $700 million on M&A and share repurchases.
Material Changes and Strategic Impact
The acquisition represents a material expansion of PFG's capabilities in the emerging markets segment. The transaction is expected to close in the third quarter of 2011, pending regulatory approval. The five partners of Finisterre Capital will retain a significant minority stake and continue to direct day-to-day operations and investment decisions.
Guidance, Outlook, and Risks
- Earnings Impact: Management estimates the acquisition will be EPS neutral in 2011 and accretive in 2012, excluding transaction and integration costs.
- Strategic Outlook: The deal aims to leverage PFG's global distribution network and product development expertise to launch new emerging market products.
- Risks and Contingencies:
- Regulatory approval is required for closing.
- Forward-looking statements regarding earnings and cash flows are subject to risks including adverse capital market conditions, impairment of goodwill, and foreign currency fluctuations.
- Integration risks and the potential for actual results to differ materially from anticipated results.
Investor Verification Checklist
- Verify the final closing date and confirmation of regulatory approvals in the third quarter of 2011.
- Monitor the 2011 earnings reports to confirm the "EPS neutral" guidance holds true after integration costs.
- Track the performance of Finisterre Capital's funds to assess the likelihood of the $30 million contingent payment in 2013.
- Review subsequent filings for any updates on the $700 million capital deployment strategy.