Last week, the London Stock Exchange announced that it had completed its acquisition of The Frank Russell Company for $2.7 billion, with a final closing scheduled for early 2015 (early as in aiming for January).
The LSE really only wanted Russell’s very profitable index business, which will give the exchange a global presence and make it the number two player in U.S.-listed exchange-traded funds. But to get the index business, LSE also had to take on the investment funds and asset management businesses as well as the consulting group. Northwestern Mutual Life Insurance Co., Russell’s former owner, wanted to sell the firm whole and not bother with piecemeal deals.
So that leaves LSE with one business line it really, really covets and fits into its business model, and a couple it has no use for. Rumor has it that as soon as the deal is finalized in January, Russell’s other business lines will be on the auction block. (Who knew that behind the façade of the venerable and staid LSE lurked the heart of a vulture capitalist?) Those rumored to be interested include private equity firms looking to get into real estate, and European-based firms looking to enter the U.S. market.
Russell has always been known as a consulting firm — at least, always known to me as a consulting firm. But its consulting group is actually a very small part of the business. According to written reports based on the sales prospectus, Russell’s index business brought in $170 million in revenues in 2013 (a nearly 50 percent profit), while the rest of the business brought in $784 million in revenues at about a 15–17 percent profit level. The consulting group was responsible for only about $40 million of that.
You begin to wonder, with all this slicing and dicing, will Russell’s consulting business survive? Will it join the list of iconic firms that no longer exist: Blockbuster, Woolworths, TWA, Arthur Anderson?
I think the first person I ever interviewed when I joined IREI years and years ago was Carol Broad. She was the perfect interview — knowledgeable, opinionated, willing to speak on the record — and very kind to a newbie in the industry whose only knowledge of real estate was knowing how to spell “collateral.” I’ve had a soft spot for Russell ever since.
But soft spots don’t drive profits, and consulting firms have been under pressure for years. To my mind, it seems unlikely that whoever eventually acquires the asset management business is going to want to also be in the consulting business. I hope I’m wrong (I have on occasion been known to be) and that when people ask me next year who the top consultants are, I’ll be able to keep Russell on that list. But I think it’s a long shot. And that is a shame.
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Sheila Hopkins is managing director – Europe and infrastructure with Institutional Real Estate, Inc.
