Citigroup Inc. has announced that it has agreed to acquire Bisys Group Inc. in a $1.45 billion deal aimed to shore up the New York-based bank’s services catering to private equity investors, mutual funds and hedge funds. The move is a part of Citigroup’s efforts to match with rivals Goldman Sachs, JP Morgan Chase and Morgan Stanley in the rapidly growing business of providing services to hedge funds. In addition, Citigroup has also agreed to sell the company’s retirement and insurance services arm to JC Flowers & Co, the private equity firm, reducing the net cost to about $800 million. The New York based company will pay $11.85 per share, representing a premium of 3.3 percent to Bisys’s stock price on Tuesday.
The takeover may help Citigroup to compete against rivals such as JPMorgan Chase and others in serving alternative-asset managers, including hedge funds, the rapidly-growing part of the investment industry. Chief Executive Officer Charles Prince has chased more than $16 billion of acquisitions since April last year, when the Federal Reserve relaxed a 13-month ban on deals by the company.
According to the plans Citigroup will combine Bisys’ fund services and alternative investments segments with the bank’s financial services and capital markets outsourcing business, consequently establishing what it called a market-leading position in serving hedge funds and mutual funds. Bisys Chief Executive Robert Casale has said in a statement that the company’s services combined with Citigroup’s expertise and client relationships will be ‘very formidable.’ The deal is expected to be concluded by the second half of the year, subject to shareholder and regulatory approval.
Moreover, Bisys has been marred in a series of controversies in recent times. In September last year, Bisys had agreed to pay $21 million to settle allegations by the Securities and Exchange Commission that it had clandestinely arranged to kick back part of its fees to 27 fund groups in exchange for the funds’ administration business. Soon after settling this case, it was also made to pay $66.5 million to settle a shareholder lawsuit that accused it of misrepresenting financial statements.
However, the acquisition will strengthen Citigroup’s fund administration business in the US where it has been underweight compared with Europe and Asia. Citigroup had recently revealed the foundation of a unit to co-ordinate the services it offers hedge funds including financing, prime brokerage, consulting services and operational support.
The takeover may also highlight the firm’s transformed interest in the hedge fund world after undermining the importance of it. Recently, Citigroup had bought Old Lane, a $4.5 billion alternative investment fund, for as much as $800 million and it established a new group within its investment bank concentrated on serving hedge funds.
