10-QPeriod: Q3 FY2005

AFFILIATED MANAGERS GROUP, INC. Quarterly Report for Q3 Ended Sep 30, 2005

Filed October 9, 2005For Securities:AMGMGRBMGRMGRDMGRE

Summary

Affiliated Managers Group, Inc. (AMG) reported a strong third quarter ended September 30, 2005, with significant year-over-year growth in revenue and net income. Total revenue increased by 41% to $234.1 million, driven by a 61% surge in average assets under management, largely attributable to strategic acquisitions, including the significant acquisition of First Asset Management Inc. in Canada. The company's performance reflects its successful growth strategy through both internal expansion of its existing businesses and strategic investments in new asset management firms. Net income saw a substantial 70% increase to $28.5 million, or $0.67 per diluted share, demonstrating improved profitability and operational efficiency. AMG's balance sheet also strengthened, with total assets growing to $2.26 billion, indicating continued expansion and investment in its Affiliates. Investors should note the company's proactive management of its debt structure, including plans for an amended credit facility, and its consistent focus on enhancing shareholder value through strategic acquisitions and organic growth.

Key Highlights

  • 1Revenue for the third quarter increased by 41% to $234.1 million compared to the prior year, driven by a 61% increase in average assets under management.
  • 2Net income rose significantly by 70% year-over-year to $28.5 million for the third quarter.
  • 3Diluted Earnings Per Share (EPS) improved to $0.67 in Q3 2005 from $0.46 in Q3 2004.
  • 4Total assets grew to $2.26 billion as of September 30, 2005, up from $1.93 billion at the end of 2004.
  • 5The company completed the significant acquisition of First Asset Management Inc. (Canada) in July 2005, which contributed to the increase in assets under management.
  • 6Operating expenses increased by 51% to $153.3 million, largely due to increased compensation and SG&A, reflecting the growth from acquisitions and business expansion.
  • 7AMG is actively managing its debt, with plans to close an amended and restated credit facility by year-end 2005.

Frequently Asked Questions

Revenue growth was primarily driven by a 61% increase in average assets under management. This surge was largely due to strategic acquisitions, particularly the significant purchase of First Asset Management Inc. in Canada, as well as positive investment performance and client cash flows across AMG's Affiliates.

The acquisition of First Asset Management Inc. in July 2005 was a major contributor to the increase in assets under management and, consequently, revenue. While the acquisition led to higher operating expenses, including compensation and goodwill, it was instrumental in expanding AMG's global reach and product offerings, contributing to the overall growth in net income.

AMG has a notable amount of debt, including senior debt, senior convertible debt, and mandatory convertible securities. The company reported $1.37 billion in total liabilities as of September 30, 2005. However, AMG expects to close an amended and restated credit facility by the end of 2005, which is anticipated to increase borrowing capacity at more favorable interest rates, indicating a proactive approach to managing its capital structure.

Operating expenses increased by 51% to $153.3 million. A substantial portion of these expenses is related to compensation and selling, general, and administrative costs, reflecting the integration of acquired businesses and organic growth. The company manages these costs through its revenue-sharing arrangements with Affiliates, aiming to align expenses with revenue growth, although increased acquisition activity has naturally led to higher overall expenses.