(Bloomberg) — TIAA-CREF agreed to buy Nuveen Investments from Madison Dearborn Partners LLC for $6.25 billion, propelling the manager of teachers’ retirement savings into the top 20 of U.S. mutual-fund firms.
The transaction price includes $4.56 billion in outstanding debt, according to the New York-based firm, which today announced the acquisition in a statement. Chicago-based Madison Dearborn purchased Nuveen almost seven years ago for $5.75 billion, in what was then the largest buyout of a U.S. asset manager.
“This makes TIAA-CREF a real contender in the marketplace,” said Geoff Bobroff, a mutual fund consultant based in East Greenwich, Rhode Island. “They will have an interesting mix of businesses.”
The transaction will help TIAA-CREF, led by former U.S. Federal Reserve vice chairman Roger Ferguson, expand mutual- funds assets and appeal to a broader set of individual investors. TIAA-CREF will add $221 billion in assets, bringing its funds under management to about $800 billion. The combined company would rank among the 20 largest U.S. mutual-fund firms, a list dominated by firms such as Fidelity Investments and Vanguard Group Inc., data from Morningstar Inc. show.
“We think this is very complimentary,” Robert Leary, head of TIAA-CREF’s asset-management unit, said today in an interview. “It also adds a very large distribution capability. They’re a powerhouse in the retail distribution world.”
Madison Dearborn acquired Nuveen in November 2007, near the top of the buyout boom. Nuveen is the largest U.S. manager of closed-end funds and is also known for its offerings investing in municipal debt — two areas that were hurt industrywide during the 2008 financial crisis.
Nuveen’s star manager David Iben left in June 2012 to form his own company backed by hedge-fund manager Jeffrey Vinik, which prompted investor withdrawals from its Tradewinds stock- picking unit. Nuveen in November 2012 hired Robert Doll, a former BlackRock Inc. equity manager known for his annual market predictions, as chief equity strategist.
TIAA-CREF, founded in 1918, had $72 billion in open-end mutual fund assets as of Feb. 28 and Nuveen had $54 billion.
Ferguson, 62, was among those mentioned in a survey of economists last year as potential successors to former Federal Reserve Chairman Ben S. Bernanke. He has changed TIAA-Cref dramatically since taking over in April 2008, Burton Greenwald, a mutual fund consultant based in Philadelphia, said in an interview.
“The company has really done a good job building the asset-management operation beyond its traditional client base,” said Greenwald in a telephone interview.
The firm has had strong performance in mutual funds said Greenwald, which it has used to transform itself into a bigger player in the retirement business. The deal will give TIAA-CREF access to distribution among brokers and advisors, an area where it has traditionally been weak.
Nuveen will remain a distinct unit within TIAA-CREF retaining its brand name and its own management, Ferguson said in an interview. He also said the deal wouldn’t change the nature of TIAA-CREF mission.
“We will continue to single-mindedly focus on the not-for-profit sector,” Ferguson said in an interview. “This isn’t a consolidation or a synergy play. We look at it as a very smart investment.”
Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. are the bankers for Nuveen Investments. UBS AG, Goldman Sachs Group Inc. and Moelis & Co. advised Nuveen’s management. Lazard Ltd. served as lead adviser to TIAA-CREF.
Madison Dearborn was advised by Morgan Stanley, Deutsche Bank AG and Royal Bank of Canada.