Trans-Tasman research group, FPG Research has signed a joint venture deal with US giant Morningstar to supply managed funds data to the Australasian market under the Morningstar brand.
The terms of the deal see Morningstar take an initial 30 per cent stake in the joint venture with an option to increase to 50 per cent at a later date.
Morningstar will initially contribute intellectual property plus “a small amount of capital” to the joint venture.
FPG Research managing director Graham Rich says the two groups have been negotiating the deal for the past six months. The deal will involve the issue of new shares “to inject capital to grow the business”.
The FPG signing follows talks between Morningstar and at least one other Australian research house over the past 14 months. Morningstar was involved in detailed discussions with Melbourne-based research group InvestorSource.
InvestorSource managing director Andrew Crawford says his company declined two offers from Morningstar, one in December 1997 and another in October last year, due to the high capital expense necessary to bring the operation to the Australian market.
Crawford says Morningstar’s offer required a US$500,000 investment by InvestorSource in return for the intellectual rights for Australia and the ability to operate under the Morningstar brand. Under the proposed deal, Crawford says, Morningstar would have taken a 30 per cent stake in the operation.
Crawford says expert advice from venture capital providers suggested InvestorSource would need to offer investors a return of between 20 and 30 per cent. Crawford says his advisors recommended the project was unlikely to return “more than 7 per cent” unless there was a dramatic change in the market.
“To increase that return we would have had to increase our share of the investor and adviser market to 80 per cent which would have only been possible if a number of other very competent players were knocked out of the market,” Crawford says.
Rich says FPG cut the deal with Morningstar in response to the globalisation of the managed funds industry.
Morningstar chief executive Don Phillips says the deal will broaden the US company’s coverage of global investments while also allowing an exchange of methodologies and intellectual capital.
“Morningstar will contribute its US and other international mutual fund and equity information, research and development resources, technology and capital. Both companies will benefit from the strengths of a global brand,” Phillips says.
Rich will continue as managing director and chief executive with a new board of directors, including Morningstar representatives, to be established soon.
Meanwhile, rival NZ based firm, IPAC (NZ) Limited, says the FPG/Morningstar deal is “interesting” but questions the motives for the move.
IPAC chief David van Schaardenburg says the way the deal is structured “obviously reflects some control issues.
“The Morningstar people are not dummies and you can be sure they will make the deal work for them,” van Schaardenburg says.
He says Morningstar is known for the quality of its database management and will want to make sure the FPG products meet with its standards.
“You can buy Morningstar information on the net relatively cheaply already so it’s intriguing as to why the deal was done,” says van Schaardenburg.
