<PAGE>
5,529,954 Shares
<TABLE>
<S> <C>
[LOGO] AFFILIATED MANAGERS GROUP, INC.
</TABLE>
Common Stock
-------------
Affiliated Managers Group, Inc. is offering 4,000,000 shares of the shares
to be sold in the offering. The selling stockholders identified in this
prospectus are offering an additional 1,529,954 shares. See "Selling
Stockholders". AMG will not receive any of the proceeds from the sale of shares
by the selling stockholders.
AMG's Common Stock is traded on the New York Stock Exchange under the symbol
"AMG". The last reported sale price of the Common Stock on February 25, 1999 was
$27.125 per share.
SEE "RISK FACTORS" ON PAGE 11 TO READ ABOUT SEVERAL FACTORS YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF THE COMMON STOCK.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------
<TABLE>
<CAPTION>
Per Share Total
----------- -------------
<S> <C> <C>
Initial public offering price............................. $ 27.125 $ 150,000,002
Underwriting discount..................................... $ 1.322 $ 7,310,599
Proceeds, before expenses, to AMG......................... $ 25.803 $ 103,212,000
Proceeds, before expenses, to the selling stockholders.... $ 25.803 $ 39,477,403
</TABLE>
The underwriters may, under certain circumstances, purchase up to an
additional 570,046 shares from AMG at the initial public offering price less the
underwriting discount.
------------------
The underwriters expect to deliver the shares against payment in New York,
New York on March 3, 1999.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
SCHRODER & CO. INC.
------------------
Prospectus dated February 25, 1999.
<PAGE>
ASSETS UNDER MANAGEMENT
[Graphical depiction of growth in assets under management from June 30, 1994
to December 31, 1998; vertical axis of assets under management (in billions)
ranging from $0 to $65 billion; horizontal axis is chronology of June 1994
through December 1998; graph includes indication of approximate date the Company
completed each of its thirteen investments; line graph begins at approximately
$1 billion in June 1994 and rises to approximately $62 billion in December
1998.]
EBITDA CONTRIBUTION
PRO FORMA NINE MONTHS ENDED SEPTEMBER 30, 1998
We hold interests in thirteen investment management firms, which we refer to
as our "affiliates". We use the term "EBITDA Contribution" to refer to the
portion of an affiliate's revenues that is allocated to AMG, after amounts
retained by the affiliate for compensation and day-to-day operating and overhead
expenses, but before the interest, tax, depreciation and amortization expenses
of the affiliate. EBITDA Contribution does not include holding company expenses.
The following pie charts show the percentage of total EBITDA Contribution
allocated to AMG by its affiliates, broken down by client type, asset class and
geographic area. The global investments referenced in the Geography pie chart
below consist of accounts invested primarily in non-U.S. marketable securities.
[Pie chart display of EBITDA Contribution pro forma nine months ended
September 30, 1998 by client type, asset class and geography; first pie chart
depicting EBITDA Contribution by client type showing institutional, mutual
funds, high net worth and other client types representing 48%, 28%, 18% and 6%
of EBITDA Contribution, respectively; second pie chart depicting asset class
EBITDA Contribution with equities, other and fixed income at 89%, 6% and 5%,
respectively; third pie chart depicting EBITDA Contribution by geography with
domestic investments and global investments representing 71% and 29%,
respectively.]
We determined these percentages by multiplying each affiliate's EBITDA
Contribution for the period by the percentage of its period-end assets under
management in the relevant category. The sum of the EBITDA Contribution by
category for all affiliates constitutes the EBITDA Contribution to AMG in that
category for the period. We believe that EBITDA Contribution may be useful to
investors as an indicator of each affiliate's contribution to AMG's ability to
service debt, to make new investments and to meet working capital requirements.
EBITDA Contribution is not a measure of financial performance under generally
accepted accounting principles and should not be considered an alternative to
net income as a measure of operating performance or to cash flows from operating
activities as a measure of liquidity. EBITDA Contribution, as calculated by us,
may not be consistent with comparable computations by other companies.
2
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO THOSE
STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS OR IN THE OTHER PUBLICLY
AVAILABLE DOCUMENTS THAT WE HAVE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION AND HAVE "INCORPORATED BY REFERENCE" IN THIS PROSPECTUS BY REFERRING
TO THEM IN THE "WHERE YOU CAN FIND MORE INFORMATION" SECTION.
AMG
BACKGROUND
We are an asset management holding company which buys and holds majority
interests in mid-sized investment management firms. We seek to grow by investing
in additional firms, as well as through the internal growth of the firms in
which we have already invested. With the completion of our most recent
investments--in Davis Hamilton Jackson & Associates and Rorer Asset
Management--we have invested in 13 investment management firms that managed
$62.1 billion in assets at December 31, 1998.
We were founded in 1993 to address the challenges facing the founders and
principal owners of many mid-sized investment management firms in shifting
ownership and control to the next generation of management. We generally define
"mid-sized" as firms with $500 million to $10 billion in assets under
management. We believed that many of the owners of these firms would be
interested in a new and better way to handle these ownership and management
succession issues. Before AMG, succession planning alternatives for these firms
were typically limited to:
- the sale of the owners' interests to their employees, generally at prices
below fair market value, or
- the sale of 100% of the firm's equity, which often failed to provide
adequate incentives for succeeding management to grow the firm.
OUR TRANSACTION STRUCTURE
We have developed an innovative transaction structure which we believe is a
superior succession planning alternative for growing, mid-sized investment
management firms. In our structure, we purchase a majority interest and
management of these firms holds the remaining interest. We believe that this
structure appeals to these firms because it:
- allows their owners to sell a portion of their interest, while ongoing
management, including junior management, holds a significant ownership
interest and has the opportunity to sell that interest to us in the
future,
- provides management with autonomy over the day-to-day operations of their
firm, and
- allows management to retain a fixed portion of their revenues to pay their
operating expenses (including salaries and bonuses), and permits
management to decide how to spend these revenues.
We believe that our structure distinguishes us from other buyers of
investment management firms. Other buyers generally seek to own 100% of their
target firms and, in many cases, seek to control the day-to-day management of
such firms. We believe that our structure is particularly appealing to managers
of firms who anticipate strong future growth, because it gives them the
opportunity to profit from the growth of their retained ownership interest.
OUR GROWTH STRATEGY
We have achieved substantial growth in assets under management, EBITDA and
net income by making new investments in mid-sized investment management firms as
well as through the internal growth of our affiliates. Since our initial public
offering in November 1997, we have made three new investments adding
approximately $13.5 billion, or 29% to our assets under management, based on our
pro forma assets under management at December 31, 1998.
3
<PAGE>
In our view, we have many opportunities to continue our growth. Our primary
strategies for achieving this growth are:
- growing our existing affiliates, and
- investing in additional mid-sized investment management firms.
The table below presents information that we believe illustrates our growth
from 1997 to 1998. We have included our unaudited financial and operating
results for the year ended December 31, 1998, which we announced on January 27,
1999, in the table below and in the "Recent Developments" section of this
prospectus.
<TABLE>
<CAPTION>
INCREASE
------------------------
YEAR ENDED DECEMBER 31, HISTORICAL PRO FORMA
----------------------------------- 1998 OVER 1998 OVER
PRO FORMA PRO FORMA PRO FORMA
AS ADJUSTED HISTORICAL PRO FORMA AS ADJUSTED AS ADJUSTED
1997(1) 1998 1998(2) 1997 1997
----------- ----------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Assets under management (in millions)......... $ 45,673 $ 57,731 $ 62,131 26% 36%
EBITDA(3) (in thousands)...................... 45,010 76,312 89,278 70 98
Net income (in thousands)..................... 8,761 25,551 28,338 192 223
Net income per share--diluted................. $ 0.49 $ 1.33 $ 1.45 171% 196%
</TABLE>
--------------------------------
(1) The pro forma as adjusted data give effect to all investments made as of
December 31, 1997 as if such investments occurred on January 1, 1997.
(2) The pro forma data give effect to all investments made as of December 31,
1998 and the Rorer investment completed on January 6, 1999 as if such
investments occurred on January 1, 1998.
(3) "EBITDA" represents earnings before interest expense, income taxes,
depreciation, amortization and extraordinary items. EBITDA is not a
measure of financial performance under generally accepted accounting
principles, as discussed in more detail in note 2 to the "Summary
Historical Financial Data" below.
INTERNAL GROWTH. Our affiliates' assets under management increased 13%
during 1998 on a pro forma basis from $54.9 billion at December 31, 1997 to
$62.1 billion at December 31, 1998. Over the same period Tweedy, Browne, our
largest affiliate based on EBITDA Contribution, grew its assets under management
by 24%, from $5.3 billion to $6.6 billion. We discuss the meaning of the term
"EBITDA Contribution" on the inside of the front cover page of this prospectus.
We continue to believe that our affiliates are well positioned for future
internal growth. Our affiliates manage assets across a diverse range of
investment styles, asset classes and client types, with significant
participation in fast-growing segments such as equities, global investments and
mutual funds. For the nine months ended September 30, 1998 pro forma,
investments in equity securities represented 89% of EBITDA Contribution, while
global investments represented 29% of EBITDA Contribution. For the same period,
mutual fund assets represented 28% of EBITDA Contribution. Other asset classes,
including fixed income, represented 11% of EBITDA Contribution; domestic
investments represented 71% of EBITDA Contribution; and institutional, high net
worth and other client types represented 72% of EBITDA Contribution for the same
period.
4
<PAGE>
OUR AFFILIATES
The table below lists our affiliates, including their assets under
management at December 31, 1998 and Rorer which became an affiliate on January
6, 1999. We own majority interests in each of our affiliates other than
Paradigm.
<TABLE>
<CAPTION>
ASSETS UNDER
MANAGEMENT
AT DECEMBER 31,
PRINCIPAL DATE OF 1998
AFFILIATE LOCATION(S) INVESTMENT ----------------
- --------------------------------------------- --------------------------- ------------------- (IN MILLIONS)
<S> <C> <C> <C>
Burridge..................................... Chicago; Seattle December 1996 $ 1,594
Davis Hamilton Jackson....................... Houston December 1998 3,468
Essex........................................ Boston March 1998 5,558
First Quadrant............................... Pasadena, CA; London March 1996 26,615
GeoCapital................................... New York September 1997 2,543
Gofen and Glossberg.......................... Chicago May 1997 4,280
Hartwell..................................... New York May 1994 362
Paradigm..................................... New York May 1995 2,898
Renaissance.................................. Cincinnati November 1995 1,390
Rorer........................................ Philadelphia January 1999 4,400
Skyline...................................... Chicago August 1995 1,161
Systematic................................... Teaneck, NJ May 1995 1,221
Tweedy, Browne............................... New York; London October 1997 6,641
--------
Total.................................. $ 62,131
</TABLE>
The assets under management of First Quadrant include directly managed
assets of $10.5 billion and $16.1 billion of assets indirectly managed using
"overlay" strategies, which are strategies that use futures, options or other
derivative securities for the purpose of enhancing the returns on an underlying
portfolio of assets. Overlay strategies generate advisory fees which are
generally at the lower end of the range of those generated by First Quadrant's
directly managed portfolios.
NEW INVESTMENTS. Since March 1, 1998, we completed three new investments:
Essex, Davis Hamilton Jackson, and Rorer. With the addition of the three new
affiliates, we increased our concentration of investments in equity securities
which generally earn higher fees and have historically experienced higher growth
in assets under management. These three completed investments added $34.1
million in EBITDA to our existing operations on a pro forma basis for the twelve
months ended December 31, 1998.
On January 29, 1999, we entered into a definitive agreement to purchase The
Managers Funds, L.P., subject to customary closing conditions. Managers had $1.8
billion in assets under management at December 31, 1998, in a family of 10
mutual funds. Managers selects subadvisers for each of its mutual fund products
from a universe of over a thousand investment managers. We describe this
transaction below in the "Recent Developments" section of this prospectus.
We continue to seek opportunities to make new investments. We estimate that
there are approximately 1,300 mid-sized firms in the United States, Canada and
the United Kingdom. We believe that many of the founders of these firms are
approaching retirement age and will begin to plan for succession at their firms.
We also see opportunities to invest in firms which are currently wholly-owned by
larger companies which are looking to exit the business.
We believe that we are well positioned to take advantage of these investment
opportunities because our management team has substantial industry experience
and expertise in structuring and negotiating transactions, as well as a highly
organized process for identifying and contacting investment prospects. We
identify and develop relationships with promising potential affiliates based on
a thorough understanding of the universe of mid-sized investment management
5
<PAGE>
firms. We try to increase awareness of our approach to investing by actively
participating in conferences and seminars related to succession planning for
investment management firms. We also maintain a program of visits, telephone
calls and other contacts in order to develop relationships with prospective
affiliates. We have identified over 750 companies in our target universe. In the
past three years, our management team has visited over 440 firms.
Our offices are located at Two International Place, 23rd Floor, Boston,
Massachusetts 02110. Our telephone number is (617) 747-3300.
THE OFFERING
The following information assumes that the underwriters do not exercise the
option granted by AMG to purchase additional shares in the offering. See
"Underwriting".
<TABLE>
<S> <C>
Shares offered by AMG........................ 4,000,000
Shares offered by the selling stockholders... 1,529,954
Total shares offered....................... 5,529,954
Shares to be outstanding after the 23,282,559
offering(1)................................
NYSE symbol.................................. "AMG"
Use of proceeds.............................. To reduce existing indebtedness. See "Use of
Proceeds".
</TABLE>
- ------------------------
(1) Excludes 1,171,750 shares of Common Stock reserved for issuance upon the
exercise of outstanding stock options under our stock option plans.
------------------------------
Except as otherwise indicated in this prospectus, all references in this
prospectus to our outstanding Common Stock include our Common Stock, our Class B
Non-Voting Common Stock and our Series C Non-Voting Convertible Stock. We are
not offering any shares of our Class B Non-Voting Common Stock or our Series C
Non-Voting Convertible Stock in this offering.
6
<PAGE>
SUMMARY PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT AS INDICATED AND SHARE AND PER SHARE DATA)
The unaudited pro forma consolidated financial data below reflect our
investments in Essex, Davis Hamilton Jackson and Rorer and the related
financings as if they had occurred on January 1, 1998. The summary pro forma
financial data do not necessarily reflect the same results as might have
occurred had the transactions reflected actually taken place at the beginning of
the period specified. We do not intend the summary pro forma financial data to
be a projection of future results. You should read the summary pro forma
financial data below together with our consolidated financial statements and the
notes to such statements, and the other financial information included or
incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA AS ADJUSTED
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998(1)
-------------------- ----------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................................ $ 189,692 $ 189,692
Operating expenses:
Depreciation and amortization..................................... 18,155 18,155
Other operating expenses.......................................... 99,321 99,321
-------------------- ----------------------
Operating income.............................................. 72,216 72,216
Investment and other income......................................... (1,593) (1,593)
Interest expense.................................................... 13,577 8,278
Minority interest................................................... 29,227 29,227
-------------------- ----------------------
Income before income taxes.......................................... 31,005 36,304
Income taxes...................................................... 13,022 15,248
-------------------- ----------------------
Net income.......................................................... $ 17,983 $ 21,056
-------------------- ----------------------
-------------------- ----------------------
Net income per share--diluted....................................... $ 0.92 $ 0.89
-------------------- ----------------------
-------------------- ----------------------
Average shares outstanding--diluted................................. 19,646,926 23,646,926
OTHER FINANCIAL DATA:
Assets under management (at period end, in millions)................ $ 56,657 $ 56,657
EBITDA(2)........................................................... 62,737 62,737
EBITDA as adjusted(3)............................................... 36,138 39,211
Historical cash flow from operating activities...................... 35,650 35,650
Historical cash flow used in investing activities................... (67,845) (67,845)
Historical cash flow from financing activities...................... 39,261 39,261
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA AS ADJUSTED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998(1)
-------------------- ----------------------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets...................................................... $ 74,603 $ 74,573
Acquired client relationships, net.................................. 189,210 189,210
Goodwill, net....................................................... 364,759 364,759
Total assets........................................................ 647,269 647,239
Current liabilities................................................. 22,868 22,868
Senior debt......................................................... 287,300 185,000
Total liabilities................................................... 320,582 218,282
Minority interest................................................... 21,264 21,264
Stockholders' equity................................................ 305,423 407,693
</TABLE>
- ------------------------
(1) The pro forma as adjusted data give effect to our sale of 4,000,000 shares
of Common Stock in this offering and the application of the estimated net
proceeds to AMG from this offering. See "Use of Proceeds" and
"Capitalization".
(2) See note (2) to the Summary Historical Financial Data below.
(3) See note (3) to the Summary Historical Financial Data below.
8
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT AS INDICATED AND SHARE AND PER SHARE DATA)
We have derived the summary historical consolidated financial data below
with respect to our statement of operations data for the three years ended
December 31, 1997 and with respect to our balance sheet data as of December 31,
1997 from our audited consolidated financial statements which are incorporated
by reference in this prospectus. The summary historical financial data set forth
below for the nine month periods ended September 30, 1997 and 1998 and as of
September 30, 1997 and 1998 are unaudited and include all adjustments,
consisting only of normal, recurring adjustments, in the opinion of our
management necessary for a fair presentation of the financial information for
such periods. The results of operations for the nine months ended September 30,
1998 may not be an accurate indication of our results for the full year. All but
one of our affiliates are majority-owned subsidiaries (we own less than a 50%
interest in Paradigm). The portion of each of our affiliate's operating results
and net assets that are owned by minority owners of each affiliate is reflected
as a reduction of net income and stockholders' equity, respectively, and called
minority interest. You should read the summary data below together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the notes to those
statements incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ---------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ 14,182 $ 50,384 $ 95,287 $ 53,280 $ 158,201
Operating expenses:
Depreciation and amortization...... 4,307 8,985 8,558 4,180 14,725
Other operating expenses........... 8,585 34,228 64,168 40,128 83,201
--------- --------- --------- --------- ----------
Operating income..................... 1,290 7,171 22,561 8,972 60,275
Investment and other income.......... (265) (337) (1,174) (814) (1,341)
Interest expense..................... 1,244 2,747 8,479 2,707 10,567
Minority interest.................... 2,541 5,969 12,249 6,025 23,981
--------- --------- --------- --------- ----------
Income (loss) before income taxes and
extraordinary item................. (2,230) (1,208) 3,007 1,054 27,068
Income taxes......................... 706 181 1,364 221 10,827
--------- --------- --------- --------- ----------
Income (loss) before extraordinary
item............................... (2,936) (1,389) 1,643 833 16,241
Extraordinary item(1)................ -- (983) (10,011) -- --
--------- --------- --------- --------- ----------
Net income (loss).................... $ (2,936) $ (2,372) $ (8,368) $ 833 $ 16,241
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Income (loss) per share--diluted:
Income (loss) before extraordinary
item............................. $ (2.95) $ (3.22) $ 0.20 $ 0.12 $ 0.85
Extraordinary item, net............ -- (2.27) (1.22) -- --
--------- --------- --------- --------- ----------
Net income (loss).................. $ (2.95) $ (5.49) $ (1.02) $ 0.12 $ 0.85
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Average shares
outstanding--diluted............... 996,144 431,908 8,235,529 6,850,761 19,146,658
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ---------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Assets under management (at period
end, in millions).................. $ 4,615 $ 19,051 $ 45,673 $ 37,993 $ 50,054
EBITDA(2)............................ 3,321 10,524 20,044 7,941 52,361
EBITDA as adjusted(3)................ 1,371 7,596 10,201 5,013 30,966
Cash flow from operating
activities......................... 1,292 6,185 16,205 6,749 35,650
Cash flow used in investing
activities......................... (37,781) (29,210) (327,275) (27,007) (67,845)
Cash flow from financing
activities......................... 46,414 15,650 327,112 24,032 39,261
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, -----------------------
1997 1997 1998
--------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets..................................... $ 52,058 $ 33,331 $ 68,793
Acquired client relationships, net................. 142,875 44,917 163,225
Goodwill, net...................................... 249,698 53,545 310,430
Total assets....................................... 456,990 142,400 557,780
Current liabilities................................ 18,815 17,251 20,379
Senior debt........................................ 159,500 63,300 200,300
Total liabilities.................................. 180,771 84,800 231,093
Minority interest.................................. 16,479 8,775 21,264
Preferred stock.................................... -- 53,577 --
Stockholders' equity............................... 259,740 48,825 305,423
</TABLE>
- ------------------------
(1) For each of 1996 and 1997 the extraordinary item represents costs that we
wrote off due to the early extinguishment of debt.
(2) "EBITDA" represents earnings before interest expense, income taxes,
depreciation, amortization and extraordinary items. We believe EBITDA may be
useful to investors as an indicator of our ability to service debt, to make
new investments and to meet working capital requirements. EBITDA, as
calculated by us, may not be consistent with computations of EBITDA by other
companies. EBITDA is not a measure of financial performance under generally
accepted accounting principles and you should not consider it an alternative
to net income as a measure of operating performance or to cash flows from
operating activities as a measure of liquidity.
(3) "EBITDA as adjusted" represents earnings after interest expense and income
taxes but before depreciation and amortization and extraordinary items. We
believe that this measure may be useful to investors as another indicator of
funds available to us, which may be used to make new investments, repay debt
obligations, repurchase shares of our Common Stock or pay dividends on our
Common Stock. EBITDA as adjusted, as calculated by us, may not be consistent
with computations of EBITDA as adjusted by other companies. EBITDA as
adjusted is not a measure of financial performance under generally accepted
accounting principles and you should not consider it an alternative to net
income as a measure of operating performance or to cash flows from operating
activities as a measure of liquidity.
10
<PAGE>
RISK FACTORS
BEFORE PURCHASING SHARES, YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS
DESCRIBED BELOW. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCURS, IT COULD
MATERIALLY ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION, AND RESULTS OF
OPERATIONS. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES WE
ARE FACING. WE MAY HAVE OTHER RISKS AND UNCERTAINTIES OF WHICH WE ARE NOT YET
AWARE OR WHICH WE CURRENTLY BELIEVE ARE IMMATERIAL THAT MAY ALSO IMPAIR OUR
BUSINESS OPERATIONS. IN LIGHT OF THESE RISKS AND UNCERTAINTIES, THE TRADING
PRICE OF OUR COMMON STOCK COULD DECLINE AND YOU MAY LOSE ALL OR PART OF THE
MONEY YOU PAID TO BUY OUR COMMON STOCK.
SOME OF THE STATEMENTS MADE IN THIS "RISK FACTORS" SECTION AND IN OTHER
SECTIONS OF THIS PROSPECTUS, OR IN DOCUMENTS THAT WE HAVE INCORPORATED BY
REFERENCE IN THIS PROSPECTUS, ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE
STATEMENTS INCLUDE, AMONG OTHER THINGS, DESCRIPTIONS OF OUR PLANS AND OBJECTIVES
FOR OUR BUSINESS AND OUR FINANCIAL PERFORMANCE, AND THE ASSUMPTIONS THAT
UNDERLIE THESE PLANS AND OBJECTIVES AND OTHER FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS PROSPECTUS. THEY ALSO INCLUDE STATEMENTS RELATING TO
ACQUISITIONS (INCLUDING PRO FORMA FINANCIAL INFORMATION) AND OTHER BUSINESS
DEVELOPMENT ACTIVITIES, FUTURE CAPITAL EXPENDITURES, FINANCING SOURCES AND
AVAILABILITY AND THE EFFECTS OF REGULATION AND COMPETITION. WE BASE THESE
STATEMENTS ON OUR CURRENT EXPECTATIONS, BUT MANY FACTORS AND UNCERTAINTIES,
INCLUDING CHANGES IN THE SECURITIES OR FINANCIAL MARKETS OR IN GENERAL ECONOMIC
CONDITIONS, THE AVAILABILITY OF EQUITY AND DEBT FINANCING, COMPETITION FOR
ACQUISITIONS OF INTERESTS IN INVESTMENT MANAGEMENT FIRMS, THE FAILURE OF CLOSING
CONDITIONS FOR PENDING INVESTMENTS TO OCCUR AND THE OTHER FACTORS DESCRIBED IN
THIS SECTION COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
DESCRIBED IN THE FORWARD-LOOKING STATEMENTS. WE CAUTION YOU NOT TO PLACE UNDUE
RELIANCE ON ANY FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE
MADE.
OUR GROWTH STRATEGY AND INVESTMENTS
MAY NOT BE SUCCESSFUL
Our growth strategy includes acquiring ownership interests in mid-sized
investment management firms. To date, we have invested in 13 such firms, which
we refer to as our "affiliates". We intend to continue this investment program
in the future, assuming that we can find suitable firms to invest in and that we
can negotiate agreements on acceptable terms. We cannot be certain that we will
be successful in finding or investing in such firms or that they will have
favorable operating results.
WE HAD NET LOSSES IN 1994-97,
OUR FIRST FOUR YEARS OF OPERATION
We have been in operation for five years and had net losses in the first
four years. To date, our growth has come mostly from making new investments.
However, the performance of our existing affiliates is becoming increasingly
important to our growth. We may not be successful in making new investments and
the firms we invest in may fail to carry out their growth or management
succession plans. As we continue to execute our business strategy, we may
experience net losses in the future, which could have an adverse effect on our
financial condition and prospects.
FUTURE FINANCINGS COULD ADVERSELY
AFFECT US AND OUR STOCKHOLDERS
A large part of the purchase price we pay for the firms in which we invest
usually consists of cash. We believe that our existing cash resources and cash
flow from operations will be sufficient to meet our working capital needs for
normal operations for the foreseeable future. However, we expect that these
sources of capital will not be sufficient to fund anticipated investments in
firms. Therefore, we will need to raise capital by making additional long-term
or short-term borrowings or by selling more shares, either publicly or
privately, in order to complete further investments. This could increase our
interest expense, decrease our net income or dilute the interests of our
existing shareholders. Moreover, we may not be able to obtain
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financing for future investments on acceptable terms, if at all.
OUR USE OF DEBT TO FINANCE ACQUISITIONS COULD ADVERSELY AFFECT US
We plan to use all of the estimated $102.3 million that we will receive from
this offering to repay part of our borrowings. We will then have $156.2 million
of debt and $173.8 million available to borrow under our credit facility. We can
use borrowings under our credit facility for future investments and for our
working capital needs only if we continue to meet the financial tests under the
terms of the credit facility. We may also borrow an additional $70 million under
our credit facility with the consent of our lenders. We anticipate that we will
borrow more in the future when we invest in investment management firms. This
will subject us to the risks normally associated with debt financing.
Our credit facility contains provisions for the benefit of our lenders which
could operate in ways that restrict the manner in which we can conduct our
business or may have an adverse impact on your interests as a stockholder. For
example:
- Our borrowings under the credit facility are collateralized by pledges of
all of our interests in our affiliates (including all interests indirectly
held through wholly-owned subsidiaries).
- Our credit facility contains, and future debt instruments may contain,
restrictive covenants that could limit our ability to obtain additional
debt financing and could adversely affect our ability to make future
investments in investment management firms.
- Our credit facility prohibits us from paying dividends and other
distributions to our stockholders and restricts us, our affiliates and any
other subsidiaries we may have from incurring indebtedness, incurring
liens, disposing of assets and engaging in extraordinary transactions. We
are also required to comply with the credit facility's financial covenants
on an ongoing basis.
- We cannot borrow under our credit facility unless we comply with its
requirements.
Because indebtedness under our credit facility bears interest at variable
rates, interest rate increases will increase our interest expense, which could
adversely affect our cash flow and ability to meet our debt service obligations.
Although we have entered into interest rate "hedging" contracts designed to
offset a portion of our exposure to interest rate fluctuations above specified
levels, we cannot be certain that this strategy will be effective. If prevailing
interest rates drop below levels set in our hedging contracts, we may have to
pay higher interest rates under the hedging contracts than would otherwise apply
under the actual indebtedness.
WRITE-OFFS OF INTANGIBLE ASSETS
COULD ADVERSELY AFFECT US
At September 30, 1998, our total assets were $557.8 million, of which $473.7
million were intangible assets consisting of acquired client relationships and
goodwill. We cannot be certain that we will ever realize the value of such
intangible assets. We are amortizing (writing off) these intangible assets on a
straight-line basis over periods ranging from 9 to 28 years in the case of
acquired client relationships and 15 to 35 years in the case of goodwill. Pro
forma for all investments in our affiliates to date, amortization of intangible
assets, including goodwill, would have resulted in a charge to operations of
$21.3 million for the year ended December 31, 1997 and $16.0 million for the
nine months ended September 30, 1998.
We evaluate each investment and establish appropriate amortization periods
based on a number of factors including:
- the firm's historical and potential future operating performance and
attrition among clients,
- the stability and longevity of existing client relationships,
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- the firm's recent, as well as long-term, investment performance,
- the characteristics of the firm's products and investment styles,
- the stability and depth of the firm's management team, and
- the firm's history and perceived franchise or brand value.
After making each investment, we reevaluate these and other factors on a
regular basis to determine if the related intangible assets continue to be
realizable and if the amortization period continues to be appropriate. In 1995
and 1996, our reevaluations resulted in the write-off of approximately $2.5
million and $4.6 million of unamortized goodwill, respectively.
We do not consider the net unamortized balance of the intangible assets of
any of our investments to be impaired as of September 30, 1998. However, any
such future determination requiring the write-off of a significant portion of
unamortized intangible assets could adversely affect our results of operations
and financial position. In addition, we intend to invest in additional
investment management firms in the future. While these firms may contribute
additional revenue to AMG, they will also result in the recognition of
additional intangible assets which will cause further increases in amortization
expense.
CHANGES IN ACCOUNTING FOR GOODWILL AMORTIZATION MAY HAVE A MATERIAL ADVERSE
AFFECT ON US
The Financial Accounting Standards Board (FASB) is currently considering a
new approach for all companies that would require all purchased goodwill to be
amortized on a straight-line basis over its useful life, not to exceed 20 years.
The FASB is also considering an approach in which the useful life of goodwill
would be presumed to be 10 years or less, unless sufficient evidence supports a
longer life, not to exceed 20 years. It is unclear whether the FASB's new
approach would apply only to newly purchased goodwill or whether it would apply
to both previously recorded and newly purchased goodwill. The FASB is expected
to issue a statement on this issue in the second quarter of 1999.
We currently amortize goodwill purchased in our 13 investments on a straight
line basis ranging from 15 to 35 years. Any changes in GAAP accounting rules
that reduce the period over which we may amortize goodwill may have an adverse
effect on our acquisition strategy and our financial results. A shorter goodwill
amortization period would increase annual amortization expense and reduce our
net income over the amortization period.
WE AND OUR AFFILIATES RELY ON KEY MANAGEMENT PERSONNEL AND CANNOT GUARANTEE
THEIR CONTINUED SERVICE
We depend on the efforts of William J. Nutt, our President and Chief
Executive Officer, Sean M. Healey, our Executive Vice President, and our other
officers. Messrs. Nutt and Healey, in particular, play an important role in
identifying suitable investment opportunities for us and in structuring and
negotiating the terms of our investments in investment management firms. Messrs.
Nutt and Healey do not have employment agreements with us, although each of them
has a significant equity interest in AMG (including options subject to vesting
provisions).
In addition, Tweedy, Browne, our largest affiliate based on revenue, depends
heavily on the services of Christopher H. Browne, William H. Browne and John D.
Spears. These individuals have managed Tweedy, Browne for over 20 years and are
primarily responsible for all of that firm's investment decisions. Although each
of these individuals has entered into an employment agreement with Tweedy,
Browne providing for continued employment until October 2007, these employment
agreements are not a guarantee that these individuals will remain with Tweedy,
Browne until that date.
Our loss of key management personnel or our inability to attract, retain and
motivate sufficient numbers of qualified management personnel may adversely
affect our business. The market for investment managers is extremely competitive
and is increasingly
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characterized by frequent movement by investment managers among different firms.
In addition, because individual investment managers at our affiliates often
maintain a strong, personal relationship with their clients based on the
clients' trust in individual managers, the loss of a key investment manager at
an affiliate could jeopardize the affiliate's relationships with its clients and
lead to the loss of client accounts. Losing client accounts in these
circumstances could have a material adverse effect on the results of operations
and financial condition of AMG and its affiliates. Although we use a combination
of economic incentives, vesting provisions, and, in some instances,
non-solicitation agreements and employment agreements in an attempt to retain
key management personnel, we cannot guarantee that key managers will remain with
us.
POOR ECONOMIC AND MARKET CONDITIONS
MAY ADVERSELY AFFECT US
Because our affiliates offer a broad range of investment management services
and utilize a number of distribution channels, changing conditions in the
financial and securities markets directly affect our performance.
The financial markets and the investment management industry in general have
experienced both record performance and record growth in recent years. For
example, between January 1, 1995 and December 31, 1998, the S&P 500 Index
appreciated at a compound annual rate of approximately 30.5% and the aggregate
assets under management of mutual and pension funds grew at a compound annual
rate of 20.7% during 1995-1997, according to the Federal Reserve Board and the
Investment Company Institute. Domestic and foreign economic conditions and
general trends in business and finance, among other factors, affect the
financial markets and businesses operating in the securities industry. We cannot
guarantee that broader market performance will be favorable in the future. Any
decline in the financial markets or a lack of sustained growth may result in a
corresponding decline in our affiliates' performance and may cause our
affiliates to experience declining assets under management and/or fees, which
would reduce cash flow distributable to AMG.
POOR PERFORMANCE BY OUR LARGEST
AFFILIATE MAY ADVERSELY AFFECT US
Our investment in Tweedy, Browne represents our single largest investment to
date, with a purchase price of $300 million. Tweedy, Browne's revenues
represented 31.3% of our pro forma revenues for the first nine months of 1998.
Poor financial performance by Tweedy, Browne would have an adverse effect on our
consolidated results of operations and financial condition.
OUR AFFILIATES' INVESTMENT MANAGEMENT CONTRACTS ARE SUBJECT TO TERMINATION
ON SHORT NOTICE
Our affiliates derive almost all of their revenues from investment
management contracts. These contracts are typically terminable without penalty
upon 60 days' notice in the case of mutual fund clients or upon 30 days' notice
in the case of individual and institutional clients. As a result, our
affiliates' clients may withdraw funds from accounts managed by the affiliates
at their election. In addition, these contracts generally provide for payment
based on the market value of assets under management, although a portion also
provide for payment based on investment performance. Because most of these
contracts provide for payments based on market values of securities,
fluctuations in securities prices will directly affect our consolidated results
of operations and financial condition. Changes in our clients' investment
patterns will also affect the total assets under management. Moreover, some of
our affiliates' fees are higher than those of other investment managers for
similar types of investment services. The ability of each of our affiliates to
maintain its fee levels in a competitive environment depends on its ability to
provide clients with investment returns and services which are satisfactory to
its clients. We cannot be certain that our affiliates will be able to retain
their existing clients or to attract new clients at their current fee levels.
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THE FAILURE TO RECEIVE REGULAR
DISTRIBUTIONS FROM OUR AFFILIATES WOULD
ADVERSELY AFFECT US
Because we are a holding company, we receive all of our cash from
distributions made to us by our affiliates. All of our affiliates have entered
into agreements with us pursuant to which they have agreed to pay to us a
specified percentage of their gross revenues on a quarterly basis. In our
agreements with our affiliates, the distributions made to us by our affiliates
represent only a portion of our affiliates' gross revenues. Our affiliates use
the portion of their revenues not required to be distributed to us to pay their
operating expenses and distributions to their management teams. The payment of
distributions to us by our affiliates may be subject to the claims of our
affiliates' creditors and to limitations applicable to our affiliates under
state laws governing corporations, partnerships and limited liability companies,
state and federal regulatory requirements for the securities industry and
bankruptcy and insolvency laws. As a result, we cannot guarantee that our
affiliates will always make these distributions. See "Business--Our Structure
and Relationship with Affiliates-- Revenue Sharing Arrangements".
OUR PURCHASE OBLIGATIONS MAY
ADVERSELY AFFECT US
When we made our original investments in our affiliates, we agreed to
purchase the additional ownership interests in each affiliate from the owners of
these interests on pre-negotiated terms which are subject to several conditions
and limitations. Consequently, we may have to purchase some of these interests
from time to time for cash (which we may have to borrow) or in exchange for
newly issued shares of our Common Stock. These purchases may result in us having
more interest expense and less net income or in our existing stockholders
experiencing a dilution of their ownership in AMG. In addition, these purchases
may result in us owning larger portions of our affiliates, which may have an
adverse effect on our cash flow and liquidity. See "Business--Our Structure and
Relationship with Affiliates--Our Purchase of Additional Interests in Our
Existing Affiliates".
OUR ABILITY TO ALTER THE MANAGEMENT PRACTICES AND POLICIES OF OUR AFFILIATES
IS LIMITED
Although our agreements with our affiliates give us the authority to control
some types of business activities undertaken by them and we have voting rights
with respect to significant decisions, our affiliates manage and control their
own day-to-day operations, including all investment management policies and fee
levels, product development, client relationships, compensation programs and
compliance activities. As a result, we may not become aware, for example, of one
of our affiliates' non-compliance with a regulatory requirement as quickly as if
we were involved in the day-to-day business of the affiliate or we may not
become aware of the non-compliance at all. In situations such as the preceding
example, our financial condition and results of operations may be adversely
affected by problems stemming from the day-to-day operations of our affiliates.
See "--Our Affiliates' Businesses Are Highly Regulated". In addition, because
our affiliates conduct their own marketing and client relations, they may from
time to time compete with each other for clients. See "Business--Our Structure
and Relationship with Affiliates".
WE MAY BE RESPONSIBLE FOR LIABILITIES INCURRED BY OUR AFFILIATES
Some of our existing affiliates are partnerships of which we are the general
partner. Consequently, to the extent any of these affiliates incurs liabilities
or expenses which exceed its ability to pay for them, we are liable for their
payment. In addition, we may be held liable in some circumstances as a control
person for acts of our affiliates or their employees. AMG and each of its
affiliates maintain errors and omissions and general liability insurance in
amounts which we believe to be adequate to cover any potential liabilities. We
cannot be certain, however, that we will not have claims which exceed the limits
of our available insurance coverage, that our insurers
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will remain solvent and will meet their obligations to provide coverage, or that
insurance coverage will continue to be available to us with sufficient limits or
at a reasonable cost. A judgment against us or any of our affiliates in excess
of our available coverage could have a material adverse effect on us.
OUR INDUSTRY AND OUR AFFILIATES'
INDUSTRY ARE HIGHLY COMPETITIVE
We are an asset management holding company which invests in mid-sized
investment management firms. The market for partial or total acquisitions of
interests in investment management firms is highly competitive. We have several
competitors which are also set up as holding companies and invest in or buy
investment management firms. In addition, many other public and private
companies, including commercial and investment banks, insurance companies and
investment management firms, most of which have longer operating histories and
significantly greater resources than us, invest in or buy investment management
firms. Moreover, some of our principal stockholders also invest in or buy
investment management firms and may compete with us as we pursue additional
investments. We cannot guarantee that we will be able to compete effectively
with such competitors, that new competitors will not enter the market or that
such competition will not make it more difficult or impracticable for us to make
new investments in investment management firms.
The investment management business is also highly competitive. Our
affiliates compete with a broad range of investment managers, including public
and private investment advisers as well as firms associated with securities
broker-dealers, banks, insurance companies and other entities. From time to
time, our affiliates may also compete with each other for clients. Many of our
affiliates' competitors have greater resources than do we and our affiliates. In
addition to competing directly for clients, competition may reduce the fees that
our affiliates can obtain for their services. We believe that each of our
affiliate's ability to compete effectively with other firms is dependent upon
the affiliate's products, level of investment performance and client service, as
well as the marketing and distribution of its investment products. We cannot be
certain that our affiliates will be able to achieve favorable investment
performance and retain their existing clients.
OUR INTERNATIONAL OPERATIONS INVOLVE RISKS WHICH MAY ADVERSELY AFFECT US
Some of our affiliates operate or advise clients outside of the United
States. Furthermore, in the future we may invest in other investment management
firms which operate or advise clients outside of the United States and our
existing affiliates may expand their non-U.S. operations. Our affiliates take
risks inherent in doing business internationally, such as changes in applicable
laws and regulatory requirements, difficulties in staffing and managing foreign
operations, longer payment cycles, difficulties in collecting
investment advisory fees receivable, political instability, fluctuations in
currency exchange rates, expatriation controls and potential adverse tax
consequences. We cannot be certain that one or more of these risks will not have
an adverse effect on our affiliates, including investment management firms in
which we may invest in the future, and, consequently, on our consolidated
business, financial condition and results of operations.
OUR AFFILIATES' BUSINESSES ARE
HIGHLY REGULATED
Our affiliates' businesses are highly regulated, primarily by U.S. federal
authorities and to a lesser extent by other authorities including non-U.S.
authorities. The failure of our affiliates to comply with laws or regulations
could result in fines, suspensions of individual employees or other sanctions,
including revocation of an affiliate's registration as an investment adviser,
commodity trading advisor or broker/dealer. Each of our affiliates (other than
First Quadrant Limited) is registered as an investment adviser with the
Securities and Exchange Commission under the Investment Advisers Act of 1940, as
amended (the
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"Investment Advisers Act"), and is subject to the provisions of the Investment
Advisers Act and related regulations. The Investment Advisers Act requires
registered investment advisers to comply with numerous obligations, including
record keeping requirements, operational procedures and disclosure obligations.
Each of our affiliates (other than First Quadrant Limited) is also subject to
regulation under the securities laws and fiduciary laws of several states.
Moreover, some of our affiliates, including Tweedy, Browne, act as advisers or
subadvisers to mutual funds which are registered with the Securities and
Exchange Commission pursuant to the Investment Company Act of 1940, as amended
(the "1940 Act"). As an adviser or subadviser to a registered investment
company, each of these affiliates must comply with the requirements of the 1940
Act and related regulations.
Our affiliates are also subject to the Employee Retirement Income Security
Act of 1974 ("ERISA"), and related regulations, to the extent they are
"fiduciaries" under ERISA with respect to some of their clients. ERISA and
related provisions of the Internal Revenue Code of 1986, as amended, impose
duties on persons who are fiduciaries under ERISA, and prohibit some
transactions involving the assets of each ERISA plan which is a client of an
affiliate, as well as some transactions by the fiduciaries (and several other
related parties) to such plans. Two of our affiliates, First Quadrant and
Renaissance, are also registered with the Commodity Futures Trading Commission
as Commodity Trading Advisors and are members of the National Futures
Association. Finally, Tweedy, Browne is registered under the Exchange Act as a
broker/dealer and, therefore, is subject to extensive regulation relating to
sales methods, trading practices, the use and safekeeping of customers' funds
and securities, capital structure, record keeping and the conduct of directors,
officers and employees.
Furthermore, the Investment Advisers Act and the 1940 Act provide that each
investment management contract under which our affiliates manage assets for
other parties either terminates automatically if assigned, or must state that it
is not assignable without consent. In general, the term "assignment" includes
not only direct assignments, but also indirect assignments which may be deemed
to occur upon the direct or indirect transfer of a "controlling block" of the
voting securities of one of our affiliates. The 1940 Act provides that all
investment contracts with mutual fund clients may be terminated by such clients,
without penalty, upon no later than 60 days' notice.
Several of our affiliates are also subject to the laws of non-U.S.
jurisdictions and non-U.S. regulatory agencies. For example, First Quadrant
Limited, located in London, is a member of the Investment Management Regulatory
Organisation of the United Kingdom, and some of our other affiliates are
investment advisers to funds which are organized under non-U.S. jurisdictions,
including Luxembourg (where the funds are regulated by the Institute Monetaire
Luxembourgeois) and Bermuda (where the funds are regulated by the Bermuda
Monetary Authority).
AMG itself does not engage in the business of providing investment advice
and, therefore, is not registered as an investment adviser under federal or
state law.
THERE IS A RISK THAT WE WILL NOT BE PREPARED FOR THE IMPACT OF THE YEAR 2000
AND, THEREFORE, WE ARE PROVIDING THE FOLLOWING YEAR 2000 READINESS DISCLOSURE
The "Year 2000" poses a concern to our business as a result of the fact that
computer applications have historically used the last two digits, rather than
all four digits, to store year data. If left unmodified, these applications
would misinterpret the Year 2000 for the year 1900 and would in many cases be
unable to function properly in the Year 2000 and beyond.
AMG'S READINESS. In anticipation of this problem, we have identified all of
the significant computers, software applications and related equipment used at
our holding company that need to be modified, upgraded
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or replaced to minimize the possibility of a material disruption to our business
based on the advent of the Year 2000. We anticipate completing our Year 2000
preparations at the holding company by the end of the second quarter of 1999. We
estimate our total cost will be less than $800,000 for the four year period
ending on December 31, 1999. We cannot be certain that we will not encounter
unforeseen delays or costs in completing our preparations.
OUR AFFILIATES' READINESS. We have also established a time line with each
of our affiliates to complete its Year 2000 preparations and have received
estimates from each of them of the costs required to complete their
preparations. As part of our general preparedness program, each of our
affiliates has assigned responsibility for preparing for the Year 2000 to a
member of its senior management in order to ensure that both proprietary and
third party vendor systems will be ready for the Year 2000. All of our
affiliates have completed their assessment and plans are in place for the
renovation or replacement of all non-compatible systems. We anticipate that the
affiliates will complete the renovation or replacement of all non-compatible
systems and the subsequent testing of all systems in the first half of 1999.
Most of our affiliates pay for the costs of their Year 2000 preparations out of
their operating allocation, which is the portion of their revenues that is
allocated to pay their operating expenses and is not available for distribution
to the owners of the affiliates. As a result, these costs will only reduce an
affiliate's distributions to AMG based on AMG's ownership interest in the
affiliate if the affiliate's operation expenses exceed its operating allocation
and the portion of revenues allocated to the management owners.
We have based our evaluation of our ability to prepare for the Year 2000
upon a number of assumptions regarding future events, including third party
modification plans and the availability of needed resources. We cannot guarantee
that these estimates will be achieved, and actual results may differ materially
from our estimates. Specific factors which might cause such material differences
with respect to the Year 2000 issue include, but are not limited to, the failure
of our affiliates to achieve represented or stated levels of Year 2000
compliance, the availability and cost of personnel trained in this area and the
ability to locate and correct all relevant computer codes and similar
uncertainties.
BECAUSE OUR BUSINESS COULD BE ADVERSELY AFFECTED IF OUR OUTSIDE SERVICE
PROVIDERS ARE NOT PREPARED FOR THE YEAR 2000, WE ARE PROVIDING THE FOLLOWING
ADDITIONAL YEAR 2000 READINESS DISCLOSURE.
Outside service providers perform several processes which are critical to
our affiliates' business operations, including transfer agency and custody
functions. Our affiliates have surveyed these parties and are monitoring their
progress. However, our affiliates have limited control, if any, over the actions
of these outside parties and in some instances have no alternative vendors. If
the affiliates or their outside service providers fail to resolve their Year
2000 issues, we anticipate that our affiliates' operations could experience
material disruptions caused by the inability to process trades and access client
and investment research data files and, accordingly, our business would be
adversely affected.
OUR CHARTER AND BY-LAWS AND DELAWARE
LAW MAY IMPEDE TRANSACTIONS
FAVORABLE TO OUR STOCKHOLDERS
Several provisions of our Amended and Restated Certificate of Incorporation,
our Amended and Restated By-laws and Delaware law may, together or separately,
prevent a transaction which is beneficial to our stockholders from occurring.
These provisions may discourage potential purchasers from presenting acquisition
proposals, delay or prevent potential purchasers from acquiring a controlling
interest in us, block the removal of incumbent directors or limit the price that
potential purchasers might be willing to pay in the future for shares of our
Common Stock. These provisions include the issuance, without further stockholder
approval, of preferred stock with rights and privileges which could be senior to
the Common Stock. We are also subject to Section 203 of the Delaware General
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Corporation Law which, subject to a few exceptions, prohibits a Delaware
corporation from engaging in any of a broad range of business combinations with
any "interested stockholder" for a period of three years following the date that
such stockholder became an interested stockholder.
WE DO NOT PLAN TO PAY DIVIDENDS TO
OUR STOCKHOLDERS
We have never declared or paid a cash dividend on our Common Stock. We
intend to retain earnings to repay debt and to finance the growth and
development of our business and do not anticipate paying cash dividends on our
Common Stock in the foreseeable future. Any declaration of cash dividends in the
future will depend, among other things, upon our results of operations,
financial condition and capital requirements as well as general business
conditions. Our credit facility also contains restrictions which prohibit us
from making dividend payments to our stockholders. See "Dividend Policy".
MARKET CONDITIONS MAY REDUCE THE
TRADING PRICE OF OUR COMMON STOCK
The market price of our Common Stock has historically experienced and may
continue to experience high volatility. Our quarterly operating results, changes
in general conditions in the economy or the financial markets and other
developments affecting us or our competitors could cause the market price of our
Common Stock to fluctuate substantially. In addition, in recent years, the stock
market has experienced significant price and volume fluctuations. This
volatility has affected the market prices of securities issued by many companies
for reasons unrelated to their operating performance and may adversely affect
the price of our Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
If our stockholders sell substantial amounts of our Common Stock (including
shares issued upon the exercise of outstanding options) in the public market
following this offering, the market price of our Common Stock could fall. Such
sales may also make it more difficult for us to sell equity or equity-related
securities in the public market in the future at a time and at a price that we
deem appropriate. Upon completion of this offering, we will have 23,282,559
shares of our Common Stock outstanding (based on the number of shares
outstanding as of December 31, 1998 and assuming no exercise of outstanding
stock options after that date). Of these shares, 17,665,223 shares are freely
tradable without restriction under the Securities Act of 1933 (the "Securities
Act"). Also, 3,825,769 shares are currently eligible for sale in the public
market subject to compliance with the volume and other limitations of Rule 144
under the Securities Act, and 1,791,567 shares will become eligible for sale at
various times after the date of this prospectus under Rule 144.
The executive officers of AMG have agreed not to sell a total of 764,560
shares of Common Stock for a period of 90 days after the date of this
prospectus, while the selling stockholders and our directors who are not selling
stockholders have agreed not to sell a total of 3,259,402 shares of Common Stock
for a period of 60 days after the date of this prospectus, in each case, without
the consent of the underwriters. In addition, AMG has also agreed, subject to
some exceptions, not to sell shares for a period of 90 days after the date of
this prospectus without the consent of the underwriters.
In addition, we have registered for resale the 2,175,000 shares of our
Common Stock reserved for issuance under our stock plans. As of December 31,
1998, options to purchase 1,171,750 shares of our Common Stock were outstanding
and will be eligible for sale in the public market from time to time subject to
vesting and, in the case of some stock options, the expiration of lock-up
agreements. The possible sale of a significant number of the shares may cause
the price of our Common Stock to fall.
In addition, the holders of approximately 3,690,549 shares of our Common
Stock have the right in some circumstances to require us
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to register their shares under the Securities Act for resale to the public, the
holders of approximately 6,073,822 shares have the right to include their shares
in any registration statement filed by us and some of the managers of our
affiliates have the right under some circumstances to exchange portions of their
interests in our affiliates for shares of our Common Stock. See "Business--Our
Structure and Relationship with Affiliates--Our Purchase of Additional Interests
in Our Existing Affiliates". Some of these managers also have the right to
include these shares in a registration statement filed by us under the
Securities Act. By exercising their registration rights and causing a large
number of shares to be sold in the public market, these holders may cause the
price of our Common Stock to fall. In addition, any demand to include these
shares in our registration statements could have an adverse effect on our
ability to raise needed capital.
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USE OF PROCEEDS
The net proceeds to AMG from the sale of 4,000,000 shares of Common Stock
offered by AMG are estimated to be $102.3 million ($117.0 million if the
underwriters' over-allotment option is exercised in full) after deducting the
estimated underwriting discount and estimated offering expenses payable by AMG.
We will not receive any proceeds from the sale of shares of Common Stock by the
selling stockholders. See "Selling Stockholders". We intend to use the proceeds
from this offering to reduce outstanding indebtedness under our credit facility.
Our outstanding indebtedness under our credit facility bears interest at
variable rates based on the prime rate or LIBOR and matures in December 2002.
This interest rate was 5.7% at January 29, 1999.
DIVIDEND POLICY
We have never declared or paid a cash dividend on our Common Stock. We currently
intend to retain earnings to finance the growth and development of our business,
including possible investments, and do not anticipate paying cash dividends for
the foreseeable future. Any payment of cash dividends in the future will depend
upon our financial condition, capital requirements and earnings, as well as
other factors our Board of Directors may deem relevant. Our ability to pay
dividends on our Common Stock is dependent on the receipt of distributions from
our affiliates. In addition, our credit facility prohibits us from making
dividend payments to our stockholders.
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CAPITALIZATION
The following table sets forth our capitalization at September 30, 1998: (i)
on an actual basis; (ii) on a pro forma basis to reflect our recent investments
in Davis Hamilton Jackson and Rorer and related financings; and (iii) on the pro
forma basis described for those investments, as adjusted to reflect the
conversion of 394,721 shares of our Class B Common Stock into Common Stock in
connection with this Offering and our use of the estimated net proceeds from
this offering as described under "Use of Proceeds".
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED
----------- ----------- ------------
<S> <C> <C> <C>
(IN THOUSANDS)
Senior debt, current portion.............................................. $ -- $ -- $ --
Senior debt, long-term portion............................................ 200,300 287,300 185,000
Subordinated debt......................................................... 800 800 800
----------- ----------- ------------
Total debt.......................................................... 201,100 288,100 185,800
Stockholders' equity:
Series C Non-Voting Convertible Stock, $.01 par value; 1,750,942 shares
authorized, issued and outstanding historical, pro forma and pro forma
as adjusted........................................................... 30,992 30,992 30,992
Common Stock, $.01 par value; 40,000,000 shares authorized; 15,707,417
shares issued and outstanding historical and pro forma; and 20,102,138
shares issued and outstanding pro forma as adjusted(1)................ 157 157 201
Class B Common Stock, $.01 par value, non-voting; 3,000,000 shares
authorized; 1,886,800 shares issued and outstanding historical, pro
forma; and 1,492,079 shares issued and outstanding pro forma as
adjusted.............................................................. 19 19 15
Additional paid-in capital on Common Stock.............................. 273,415 273,415 375,645
Accumulated other comprehensive income.................................. 15 15 15
Retained earnings....................................................... 2,359 2,359 2,359
Less treasury shares.................................................... (1,534) (1,534) (1,534)
----------- ----------- ------------
Total stockholders' equity.......................................... 305,423 305,423 407,693
----------- ----------- ------------
Total capitalization................................................ $ 506,523 $ 593,523 $ 593,493
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
- ------------------------
(1) Excludes (i) 92,500 shares of Common Stock reserved for issuance under
options outstanding under our 1995 stock plan, of which 53,959 shares were
issuable at September 30, 1998 upon the exercise of outstanding stock
options at $9.10 per share, and (ii) 898,500 shares of Common Stock reserved
for issuance under options outstanding under our 1997 stock plan, of which
32,500 shares were issuable at September 30, 1998 upon the exercise of
outstanding stock options at a weighted average exercise price of $34.25 per
share. Includes 62,600 shares repurchased after September 30, 1998.
22
<PAGE>
DILUTION
Our pro forma net tangible book value (deficit) at September 30, 1998 was
$(248.6) million, or $(14.16) per share of Common Stock. Pro forma net tangible
book value per share represents the amount of our total tangible assets less
total liabilities, each on a pro forma basis to reflect our recent investments
in Davis Hamilton Jackson and Rorer and related financings, divided by the
number of shares of Common Stock outstanding, which for these purposes we deem
to include our Common Stock and our Class B Non-Voting Common Stock, but not our
Series C Non-Voting Convertible Stock. After giving effect to the sale of the
4,000,000 shares of Common Stock offered by AMG in this offering at a public
offering price of $27.125 per share (before deducting the estimated underwriting
discount and estimated offering expenses), and the application of the estimated
net proceeds, our pro forma net tangible book value (deficit) at September 30,
1998 would have been $(146.3) million, or $(6.79) per share. This represents an
immediate decrease in the pro forma net tangible book value (deficit) of $7.37
per share to new investors in our Common Stock in this offering.
<TABLE>
<S> <C> <C>
Public offering price per share(1)...................................... $ 27.125
Pro forma net tangible book value (deficit) per share before this
offering.......................................................... $ (14.16)
Increase per share attributable to new investors.................... 7.37
Pro forma net tangible book value (deficit) per share after this
offering.............................................................. (6.79)
---------
Dilution per share to new investors(2)(3)............................... $ 33.915
---------
---------
</TABLE>
- ------------------------
(1) Assumed public offering price before deduction of underwriting discount and
estimated expenses of this offering to be paid by AMG.
(2) Dilution is determined by subtracting the pro forma net tangible book value
(deficit) per share of our Common Stock after this offering from the assumed
public offering price paid by purchasers in this offering for a share of our
Common Stock.
(3) Assumes no exercise of outstanding stock options. As of the date of this
prospectus, there are options (including both vested and unvested options)
outstanding to purchase 1,171,750 shares of Common Stock at a weighted
average exercise price of $26.34. See the notes to our consolidated
financial statements incorporated by reference. If any of these options were
exercised, there would be further dilution to purchasers of Common Stock in
this offering.
Assuming the underwriters' over-allotment options are exercised in full, the
pro forma net tangible book value (deficit) at September 30, 1998 would be
$(131.6) million, or $(5.95) per share of Common Stock, the immediate increase
in pro forma net tangible book value of shares owned by existing stockholders
would be $8.21 per share, and the immediate dilution to purchasers of shares of
Common Stock in this offering would be $33.08 per share.
23
<PAGE>
RECENT DEVELOPMENTS
PLANNED ACQUISITION OF THE MANAGERS
FUNDS, L.P.
On January 29, 1999, we entered into a definitive agreement to acquire
substantially all of the partnership interests in The Managers Funds, L.P.,
which serves as the adviser to a family of ten equity and fixed income no-load
mutual funds. These mutual funds had a total of $1.8 billion in assets at
December 31, 1998. This transaction is subject to customary closing conditions.
Managers employs an innovative business model whereby it selects subadvisers
for its mutual fund products from a universe of over a thousand investment
managers. The funds are distributed to retail and institutional clients directly
and through intermediaries including independent investment advisers, 401(k)
plan sponsors and alliances, broker-dealers, major fund marketplaces and bank
trust departments. We believe that the acquisition of Managers will provide some
of our affiliates that have traditionally focused on institutional clients with
an opportunity to reach new clients through Managers' diverse mutual fund
distribution channels.
Except as otherwise specifically indicated in this prospectus, none of the
financial or other information contained in this prospectus reflects our planned
acquisition of Managers.
FOURTH QUARTER AND FULL YEAR 1998 RESULTS
On January 27, 1999, we reported our financial and operating results for the
fourth quarter and year ended December 31, 1998.
Our net income for the fourth quarter was $9.3 million, or $0.48 per share
on a diluted basis, on revenues of $80.3 million. Our EBITDA for the fourth
quarter was $24.0 million. These results compare to net income before
extraordinary item for the fourth quarter 1997 of $0.8 million, or $0.07 per
share on a diluted basis, on revenues of $42.0 million, and EBITDA before
extraordinary item of $12.1 million. The revenues, EBITDA and net income for the
fourth quarter 1998 include substantial performance fees which, due to their
dependence on investment results, may not recur to the same magnitude in 1999
and future years.
For the year ended December 31, 1998, our net income was $25.6 million, or
$1.33 per share on a diluted basis, on revenues of $238.5 million, while our
EBITDA for the year ended December 31, 1998 was $76.3 million. For the year
ended December 31, 1997, our net income before extraordinary items was $1.6
million, or $0.20 per share on a diluted basis, on revenues of $95.3 million.
Our EBITDA for the year ended December 31, 1997 was $20.0 million.
On a pro forma basis (giving effect to the investments in Essex, completed
on March 20, 1998, Davis Hamilton Jackson, completed on December 31, 1998, and
Rorer, completed on January 6, 1999, as if each occurred on January 1, 1998),
net income for the year ended December 31, 1998 was $28.3 million, or $1.45 per
share on a diluted basis. Our EBITDA on the same pro forma basis for the year
ended December 31, 1998 was $89.3 million.
Pro forma for the investment in Rorer, assets under management at December
31, 1998 were $62.1 billion. Assets under management by Tweedy, Browne, our
largest affiliate based on EBITDA Contribution, rose to $6.6 billion, a 24.3%
increase for the year. Aggregate net client cash flows were positive for the
year at $160 million, although those for the fourth quarter were negative $1.5
billion due to a decline in assets indirectly managed using "overlay"
strategies. Overlay assets declined by $1.6 billion in the fourth quarter and
for the year. Overlay assets generally carry lower fees than directly managed
assets. Excluding the effect of these overlay assets, aggregate directly managed
assets of our affiliates increased by $170 million in the fourth quarter and
$1.7 billion for the year.
24
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
THREE MONTHS ENDED THREE MONTHS
DECEMBER 31, ENDED
---------------------------- DECEMBER 31,
1997 1998 1998 (1)
------------- ------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
STATEMENT OF INCOME DATA:
Revenues.......................................................... $ 42,007 $ 80,293 $ 88,635
Other operating expenses.......................................... 24,040 42,390 46,853
Depreciation and amortization..................................... 4,378 5,398 6,230
------------- ------------- --------------
Operating income.................................................. 13,589 32,505 35,552
Investment and other income....................................... (360) (910) (992)
Interest expense.................................................. 5,772 3,036 4,009
Income before minority interest, income taxes and extraordinary
item............................................................ 8,177 30,379 32,535
Minority interest................................................. (6,224) (14,862) (16,232)
------------- ------------- --------------
Income before income taxes and extraordinary item................. 1,953 15,517 16,303
Income tax expense................................................ 1,143 6,207 6,847
------------- ------------- --------------
Income before extraordinary item.................................. 810 9,310 9,456
Extraordinary item................................................ (10,011) -- --
------------- ------------- --------------
Net income (loss)................................................. $ (9,201) $ 9,310 $ 9,456
------------- ------------- --------------
------------- ------------- --------------
Average shares outstanding--basic................................. 7,331,741 17,492,720 17,492,720
Average shares outstanding--diluted............................... 12,344,678 19,360,481 19,360,481
Income before extraordinary item per share--basic................. $ 0.11 $ 0.53 $ 0.54
Income before extraordinary item per share--diluted............... $ 0.07 $ 0.48 $ 0.49
OTHER FINANCIAL DATA:
EBITDA (2)........................................................ $ 12,103 $ 23,951 $ 26,542
EBITDA as adjusted (3)............................................ 5,188 14,708 15,686
EBITDA as adjusted per share (under same method used to calculate
diluted earnings per share)..................................... $ 0.42 $ 0.76 $ 0.81
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1998
-------------- -------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
BALANCE SHEET DATA:
Senior debt..................................................... $ 159,500 $ 212,500 $ 277,500
Subordinated debt............................................... 800 800 800
Stockholders' equity............................................ 259,740 313,655 313,655
</TABLE>
25
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER 31, YEAR ENDED
-------------------------- DECEMBER 31,
1997 1998 1998 (1)
----------- ------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
STATEMENT OF INCOME DATA:
Revenues........................................................... $ 95,287 $ 238,494 $ 278,327
Other operating expenses........................................... 64,168 125,590 146,175
Depreciation and amortization...................................... 8,558 20,124 24,386
----------- ------------- --------------
Operating income................................................... 22,561 92,780 107,766
Investment and other income........................................ (1,174) (2,251) (2,585)
Interest expense................................................... 8,479 13,603 16,034
Income before minority interest, income taxes and extraordinary
item............................................................. 15,256 81,428 94,317
Minority interest.................................................. (12,249) (38,843) (45,459)
----------- ------------- --------------
Income before income taxes and extraordinary item.................. 3,007 42,585 48,858
Income tax expense................................................. 1,364 17,034 20,520
----------- ------------- --------------
Income before extraordinary item................................... 1,643 25,551 28,338
Extraordinary item................................................. (10,011) -- --
----------- ------------- --------------
Net income (loss).................................................. $ (8,368) $ 25,551 $ 28,338
----------- ------------- --------------
----------- ------------- --------------
Average shares outstanding--basic.................................. 2,270,684 17,582,900 17,582,900
Average shares outstanding--diluted................................ 8,235,529 19,222,831 19,597,008
Income before extraordinary item per share--basic.................. $ 0.72 $ 1.45 $ 1.61
Income before extraordinary item per share--diluted................ $ 0.20 $ 1.33 $ 1.45
OTHER FINANCIAL DATA:
EBITDA (2)......................................................... $ 20,044 $ 76,312 $ 89,278
EBITDA as adjusted (3)............................................. 10,201 45,675 52,724
EBITDA as adjusted per share (under same method used to calculate
diluted earnings per share)...................................... $ 1.24 $ 2.38 $ 2.69
</TABLE>
26
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT AS INDICATED)
<TABLE>
<CAPTION>
PRO FORMA
THREE MONTHS THREE MONTHS PRO FORMA
ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1998 1998 (1) 1998 (1)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
(UNAUDITED)
SUPPLEMENTAL REPORTED AND PRO FORMA INFORMATION:
Assets under management (at period end, in millions):
Tweedy, Browne...................................... $ 6,641 $ 6,641 $ 6,641 $ 6,641
Other Affiliates (4)................................ 51,090 51,090 55,490 55,490
-------------- -------------- -------------- --------------
Total........................................... $ 57,731 $ 57,731 $ 62,131 $ 62,131
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Revenues:
Tweedy, Browne...................................... $ 18,937 $ 78,243 $ 18,937 $ 78,243
Other Affiliates.................................... 61,356 160,251 69,698 200,084
-------------- -------------- -------------- --------------
Total........................................... $ 80,293 $ 238,494 $ 88,635 $ 278,327
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Owners' Allocation (5):
Tweedy, Browne...................................... $ 13,072 $ 54,097 $ 13,072 $ 54,097
Other Affiliates.................................... 28,902 69,785 32,818 88,936
-------------- -------------- -------------- --------------
Total........................................... $ 41,974 $ 123,882 $ 45,890 $ 143,033
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
EBITDA Contribution (6):
Tweedy, Browne...................................... $ 9,392 $ 39,284 $ 9,392 $ 39,284
Other Affiliates.................................... 17,027 44,676 19,618 57,642
-------------- -------------- -------------- --------------
Total........................................... $ 26,419 $ 83,960 $ 29,010 $ 96,926
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
RECONCILIATION OF EBITDA CONTRIBUTION TO EBITDA:
Total EBITDA Contribution (as above)................ $ 26,419 $ 83,960 $ 29,010 $ 96,926
Less, holding company expenses...................... (2,468) (7,648) (2,468) (7,648)
-------------- -------------- -------------- --------------
EBITDA(2)........................................... $ 23,951 $ 76,312 $ 26,542 $ 89,278
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
- ------------------------
(1) The pro forma financial data give effect to the investments in Essex, Davis
Hamilton Jackson, and Rorer and financing transactions which occurred during
1998 and 1999 as if each of such transactions occurred as of January 1,
1998.
(2) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization and extraordinary items.
(3) EBITDA as adjusted represents earnings after interest expense and income
taxes but before depreciation and amortization and extraordinary items.
(4) Assets under management for the three months ended December 31, 1998 and
year ended December 31, 1998 reflect assets for Davis Hamilton Jackson.
Revenues, Owners' Allocation and EBITDA Contribution for the same periods do
not reflect the investment in Davis Hamilton Jackson due to its closing date
of December 31, 1998.
(5) Owners' Allocation represents the portion of an affiliate's revenues which
is allocated to the owners of that affiliate, including AMG, generally in
proportion to their ownership interests, pursuant to the revenue sharing
agreement with such affiliate.
(6) EBITDA Contribution represents the portion of an affiliate's revenues that
is allocated to AMG after amounts retained by the affiliate for compensation
and day-to-day operating and overhead expenses, but before the interest,
income taxes, depreciation and amortization expenses of the affiliate.
27
<PAGE>
BUSINESS
OVERVIEW
We acquire equity interests in mid-sized investment management firms and
currently derive all of our revenues from those firms. We refer to the firms in
which we have invested as our "affiliates". We hold investments in 13 affiliates
that managed $62.1 billion in assets at December 31, 1998.
We were founded in 1993 to address the succession and ownership transition
issues facing the founders and principal owners of many mid-sized investment
management firms. We did this because we believed that many of them wanted a new
alternative for shifting ownership to the next generation of management. We
developed an innovative transaction structure to serve as a superior succession
planning alternative for these firms.
The key component of our transaction structure is our purchase of majority
interests in these firms. Within this structure, we allow ongoing managers to
keep a significant ownership interest in their firms which they may sell to us
in the future, we give management autonomy over the day-to-day operations of
their firm, and we allow management to decide how to spend a fixed portion of
their revenues on salaries, bonuses and other operating expenses.
We implement our structure through a revenue sharing arrangement with each
of our affiliates. This arrangement allocates a specified percentage of
revenues, typically 50-70%, for use by the affiliate's management in paying the
salaries, bonuses and other operating expenses of the affiliate and the
remaining portion of revenues, typically 30-50%, to the owners of that
affiliate, including AMG, generally in proportion to their ownership of the
affiliate. We believe that our structure is particularly appealing to managers
of firms which anticipate strong future growth, because it gives them the
opportunity to profit from an affiliate's growth through this revenue sharing
arrangement.
The table below depicts the pro forma change in our assets under management
(assuming all 13 of our affiliates were included for the entire periods
presented).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
(IN MILLIONS)
Assets under management--beginning......................................................... $ 35,324 $ 54,961
Net new sales.............................................................................. 12,339 2,001
Market appreciation........................................................................ 7,298 5,169
--------- ---------
Assets under management--ending............................................................ $ 54,961 $ 62,131
--------- ---------
--------- ---------
</TABLE>
We generally seek to acquire interests in investment management firms with
$500 million to $10 billion of assets under management. The growth in the
investment management industry has resulted in a significant increase in the
number of firms in this size range. We have identified approximately 1,300 of
these firms in the United States, Canada and the United Kingdom. We believe
that, in the coming years, a substantial number of investment opportunities will
arise as founders of these firms approach retirement age and begin to plan for
succession. We also anticipate significant additional investment opportunities
in firms that are currently wholly-owned by larger entities. We believe that we
can take advantage of these investment opportunities because our management team
has substantial industry experience and expertise in structuring and negotiating
transactions, as well as a highly organized process for identifying and
contacting investment prospects.
28
<PAGE>
HOLDING COMPANY OPERATIONS
Our management performs two primary functions:
- implementing our strategy of growth through acquisitions of interests in
prospective affiliates; and
- supporting, enhancing, and monitoring the activities of our existing
affiliates.
ACQUISITION OF INTERESTS IN PROSPECTIVE AFFILIATES
The acquisition of interests in new affiliates is a primary element of our
growth strategy. Our management takes responsibility for each step in this
process, including identification and contact of potential affiliates, and the
valuation, structuring and negotiation of transactions. In general, we try to
initiate our discussions with potential affiliates on an exclusive basis. We do
not actively seek to participate in competitive auction processes or employ
investment bankers or finders. However, AMG and its transaction structure have
been competitive in cases where investment bankers have been involved. Of our 13
affiliates, five were represented by investment bankers while the remaining
eight were transactions initiated by our management.
Our management identifies and develops relationships with promising
potential affiliates based on a thorough understanding of the universe of
mid-sized investment management firms derived from our proprietary database made
up of data from third party vendors, public and industry sources and our own
research. We use this database to screen and prioritize investment prospects. We
also use the database to monitor the level and frequency of interaction with
potential affiliates. This database and our related contact management system
help us to identify promising potential affiliates and to develop and maintain
relationships with these firms.
We try to increase awareness of our approach to investing by actively
participating in conferences and seminars related to succession planning for
investment management firms. These activities lead to a substantial number of
unsolicited calls to AMG by firms considering succession planning issues. In
addition, our management maintains an active calling program in order to develop
relationships with prospective affiliates. In the past three years, our
management has visited over 440 firms. We believe that we have established
ongoing relationships with a substantial number of firms which will be
considering succession planning alternatives in the future.
Once discussions with a target firm lead to transaction negotiations, our
management team performs all of the functions related to the valuation,
structuring and negotiation of the transaction. Our management team includes
professionals with substantial experience in mergers and acquisitions of
investment management firms.
Upon the negotiation and execution of definitive agreements, the target firm
contacts its clients to notify them and seek their consent to the transaction
(which constitutes an assignment of the firm's investment advisory contracts),
as required by the Investment Advisers Act. If the firm has mutual fund clients,
the firm seeks new contracts with those funds, as required by the 1940 Act. The
new contracts must be approved by the funds' shareholders through a proxy
process.
AFFILIATE SUPPORT
In addition to seeking new investments, we seek to support and enhance the
growth and operations of our affiliates. We believe that the management of each
affiliate is in the best position to assess its firm's needs and opportunities,
and that the autonomy and culture of each affiliate should be preserved.
However, when requested by the management of an affiliate, we provide strategic,
marketing and operational assistance. We believe that our affiliates find these
support services attractive because the services otherwise may not be as
accessible or as affordable to mid-sized investment management firms.
In addition to the diverse industry experience and knowledge of our senior
management, we maintain relationships with
29
<PAGE>
many consultants whose specific expertise enhances our ability to offer a wide
range of assistance. Our initiatives to support our affiliates have included:
- new product development,
- marketing material development,
- institutional sales assistance,
- recruiting,
- compensation evaluation,
- regulatory compliance audits, and
- client satisfaction surveys.
We also work to obtain discounts on some of the products and services that
our affiliates need, such as:
- sales training seminars,
- public relations services,
- insurance, and
- retirement benefits.
One way that we seek to enhance the growth of our affiliates is by helping
them acquire smaller investment management firms or teams which are not suitable
as stand-alone investments by AMG. Mid-sized firms may have difficulty finding
and capitalizing on these opportunities on their own. As an example, in July
1998, we structured and financed the acquisition of Sound Capital Partners by
The Burridge Group LLC, one of our affiliates.
OUR STRUCTURE AND RELATIONSHIP
WITH AFFILIATES
As part of our investment structure, each of our affiliates is organized as
a separate and largely autonomous limited liability company or partnership. Each
affiliate operates under its own organizational document, a limited liability
company agreement or partnership agreement. The organizational document includes
provisions regarding the use of the affiliate's revenues and the management of
the affiliate. The organizational document also generally gives management
owners the ability to realize the value of their retained equity interests in
the future. While the organizational document of each affiliate is agreed upon
at the time of our investment, from time to time we agree to amendments to
accommodate our business needs or those of our affiliates.
OPERATIONAL AUTONOMY OF AFFILIATES
We develop the management provisions in each organizational document jointly
with the affiliate's senior management at the time we make our investment. Each
organizational document has provisions that differ from the others. However, all
of them give the affiliate's management team the power and authority to carry on
the day-to-day operations and management of the affiliate, including matters
relating to:
- personnel,
- investment management,
- policies and fee structures,
- product development,
- client relationships, and
- employee compensation programs.
However, we retain the authority to prevent some specified types of actions
which we believe could adversely affect cash distributions to AMG. For example,
none of the affiliates may incur material indebtedness without our consent. AMG
itself does not engage in the business of providing investment advice and,
therefore, is not registered as an investment adviser.
REVENUE SHARING ARRANGEMENTS
When we make an investment in an affiliate, we negotiate a revenue sharing
arrangement with that affiliate, which we place in its organizational document.
The revenue sharing arrangement allocates a percentage of revenues (typically
50-70%) for use by management of that affiliate in paying operating expenses of
the affiliate, including salaries and bonuses. We call this the "Operating
Allocation". We determine the percentage of revenues designated as Operating
Allocation for each affiliate in consultation with the managers of the affiliate
30
<PAGE>
at the time of our investment based on the affiliate's historical and projected
operating margins. The organizational document of each affiliate allocates the
remaining portion of the affiliate's revenues (typically 30-50%) to the owners
of that affiliate (including AMG), generally in proportion to their ownership of
the affiliate. We call this the "Owners' Allocation" because it is the portion
of revenues which the affiliate's management is prohibited from spending on
operating expenses without the prior consent of AMG. Each affiliate distributes
its Owners' Allocation to its management owners and AMG in proportion to their
ownership interests in that affiliate.
Before agreeing to these allocations, we examine the revenue and expense
base of the firm. We only agree to a division of revenues if we believe that the
Operating Allocation will cover all operating expenses of the affiliate,
including in cases involving an increase in expenses, or a decrease in revenues
without a corresponding decrease in operating expenses.
While our management has significant experience in the asset management
industry, we cannot be certain that we will successfully anticipate changes in
the revenue and expense base of any firm. Therefore, we cannot be certain that
the agreed-upon Operating Allocation will be large enough to pay for all
operating expenses, including salaries and bonuses of the affiliate.
One of the purposes of our revenue sharing arrangements is to provide
ongoing incentives for the managers of the affiliates by allowing them:
- to participate in their firm's growth, through their compensation from the
Operating Allocation,
- to receive a portion of the Owners' Allocation based on their ownership
interest in the affiliate, and
- to control operating expenses, thereby increasing the portion of the
Operating Allocation which is available for growth initiatives and bonuses
for management of the affiliate.
The managers of each affiliate, therefore, have an incentive to both increase
revenues (thereby increasing the Operating Allocation) and to control expenses
(thereby increasing the excess Operating Allocation).
The revenue sharing arrangements allow AMG to participate in the revenue
growth of each affiliate, because AMG receives a portion of the additional
revenue as its share of the Owners' Allocation. However, we participate in that
growth to a lesser extent than the managers of the affiliate, because we do not
share in the growth of the Operating Allocation.
Under the organizational documents of the affiliates, the allocations and
distributions of cash to AMG generally take priority over the allocations and
distributions to the management owners of the affiliates. This further protects
AMG if there are any expenses in excess of the Operating Allocation of an
affiliate. Thus, if an affiliate's expenses exceed its Operating Allocation, the
excess expenses first reduce the portion of the Owners' Allocation allocated to
the affiliate's management owners, until that portion is eliminated, and then
reduce the portion allocated to AMG.
31
<PAGE>
This diagram illustrates the typical
allocation of our affiliates' revenues.
[Diagram demonstrating the flow of revenues from an affiliate to AMG, to
management owners of the affiliate, and to pay operating expenses of the
affiliate.]
[Diagram begins on the left side of the page with a square with "Affiliate"
written inside; an arrow moves from left to right, beginning on the right side
of the square, and connects to a rectangle entitled "Revenue Sharing
Agreement".]
[Two arrows originate from the right side of the "Revenue Sharing Agreement"
rectangle; one arrow begins at the top right corner and moves diagonally upwards
to the right to an oval shape with "Operating Allocation" written inside; the
bottom arrow moves diagonally downwards to the right from the lower right corner
of the rectangle and connects to an oval shape with "Owners' Allocation" written
inside.]
[Two arrows originate from the right side of the oval titled "Operating
Allocation"; one arrow moves diagonally upwards and to the right and connects
with another oval shape entitled "Salary and Bonuses to Employees; Other
Operating Expenses"; the second arrow, with the words "Excess Operating
Allocation" written on the arrow, moves diagonally downwards and to the right to
a rectangle entitled "Affiliate Management Equity Holders".]
[The "Owners' Allocation" oval has two arrows originating on the right side;
one arrow, with the words "Owners' Allocation" written on it, moves diagonally
upwards and to the right and connects to the rectangle called "Affiliate
Management Equity Holders" described above; the second arrow, with the words
"Owners' Allocation" written on it, moves diagonally downwards and to the right
and connects to a pennant-shaped symbol with "AMG" written inside.]
OUR PURCHASE OF ADDITIONAL INTERESTS IN OUR EXISTING AFFILIATES
Under our transaction structure, the management team at each affiliate
retains an ownership interest in their own firm. We consider this a key way that
we provide management with incentives to grow their firms. In order to provide
as much incentive as we can, we include in the organizational documents of each
affiliate (other than Paradigm) "put" rights for its management owners. The put
rights require us periodically to buy part of the management owners' interests
in the affiliate, for cash, shares of our Common Stock or a combination of both.
In this way, the management owners can realize a portion of the equity value
that they create in their firm. In addition, the organizational documents of
some of our affiliates provide us with "call" rights that let us require the
management owners to sell portions of their interests in the affiliate to AMG.
Finally, the organizational documents of each affiliate include provisions
obligating each such owner to sell his or her remaining interests at a point in
the future, generally after the termination of his or her employment with the
affiliate. Underlying all of these provisions is our basic philosophy that
management owners of each affiliate should maintain an ownership level in that
affiliate within a range that offers them sufficient incentives to grow and
improve their business to create equity value for themselves.
PUT RIGHTS. The put rights are designed to let the management owners
convert portions of their retained ownership interest into cash, shares of our
Common Stock or a combination of both prior to their retirement. In addition, as
an alternative to simply purchasing all of a management owner's interest in the
affiliate following the termination of his or her employment, the put rights
enable us to purchase additional interests in the affiliates at a more gradual
rate. We believe that a more gradual purchase of interests in affiliates will
make it easier for us to keep our ownership of each affiliate within a desired
range. We can do this by transferring purchased interests in the affiliate to
more junior members of its management.
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In most cases, the put rights do not become exercisable for a period of
several years from the date of our investment in an affiliate. Once exercisable,
the put rights generally are limited in the aggregate to a percentage of the
management owner's ownership interests. The most common formulation among all
the affiliates is that a management owner's put rights:
- do not commence for five years from the date of AMG's investment (or, if
later, the date he or she purchased his or her interest in the affiliate),
- are limited, in the aggregate, to fifty percent of the interests he or she
held in the affiliate, and
- are limited, in any twelve-month period, to ten percent of the greatest
interest he or she held in the affiliate. In addition, the organizational
documents of the affiliates generally contain a limitation on the maximum
total amount that management of any affiliate may require AMG to purchase
pursuant to their put rights in any given twelve-month period.
The purchase price under the put rights is generally based on a multiple of
the affiliate's Owners' Allocation at the time the right is exercised, with the
multiple generally having been determined at the time we made our initial
investment.
CALL RIGHTS. The call rights are designed to assure AMG and the management
members of some of our affiliates that we can facilitate some transition within
the senior management team after an agreed-upon period of time. The call rights
vary in each specific instance, but in all cases the timing, mechanism and price
are agreed upon when we make our investment. The price is payable in cash or in
shares of our Common Stock.
BUY-OUT RIGHTS. The organizational documents of each affiliate provide that
the management owners will realize the remaining equity value they have created
generally following the termination of their employment with the affiliate. In
general, upon a management owner's retirement after an agreed-upon number of
years, or upon his or her earlier death, permanent incapacity or termination
without cause (but with AMG's consent), that management owner is required to
sell to AMG (and AMG is required to purchase from the management owner) his or
her remaining interests. The purchase price in these cases is payable either in
cash, shares of our Common Stock or a combination of both. The purchase price is
generally based on the same formulas that apply to put rights. In general, if a
management owner quits early or is terminated for cause, his or her interests
will be purchased by AMG for cash at a substantial discount to the price that he
or she would otherwise be paid. Also, if a management owner quits or is
terminated for cause within the first several years following our investment
(or, if later, the date the management owner purchased his or her interest in
the affiliate), the management owner generally receives nothing for his or her
retained interest.
If an affiliate collects any key-man life insurance or lump-sum disability
insurance proceeds upon the death or permanent incapacity of a management owner,
the affiliate must use that money to purchase his or her interests. A purchase
by an affiliate would have the effect of ratably increasing the ownership
percentage of AMG and each of the remaining management owners. By contrast, the
purchase of interests by AMG only increases AMG's ownership percentage. The
organizational documents of most of the affiliates provide for the purchase of
such insurance, to the extent requested by AMG. The premium costs are subtracted
from the Owners' Allocation of the affiliate, so all of the affiliate's owners
(including AMG and management) bear this cost.
OUR AFFILIATES
In general, our affiliates derive revenues by charging fees to their clients
that are typically based on the market value of assets under management. In some
instances, however, the affiliates may derive revenues from fees based on
investment performance.
33
<PAGE>
BURRIDGE
Burridge, founded in 1986, is a Chicago and Seattle-based firm which
specializes in the management of mid-capitalization and large-capitalization
growth equity portfolios. Burridge's clients include corporate, Taft-Hartley and
public pension plans, as well as foundations, endowments and individuals.
Burridge has two distinct investment teams, a Chicago-based team which manages
its mid-capitalization portfolios, and a Seattle-based team which manages its
large-capitalization portfolios. Burridge's management team is led by President
and Chief Executive Officer, John H. Streur, Jr.
DAVIS HAMILTON JACKSON
Davis Hamilton Jackson is a Houston-based investment adviser which manages
equity securities employing a disciplined growth approach and fixed income
instruments. Founded in 1988, the firm is led by its co-founders Robert C. Davis
and Jack R. Hamilton, along with a management group of other investment and
client service professionals, who serve a diversified client base including
pension and profit sharing plans for public and private entities, corporations
and Taft-Hartley accounts, as well as trusts, high net worth individuals and a
sub-advised mutual fund.
ESSEX
Essex is a Boston-based investment adviser specializing in investing in
growth equities and fixed income securities employing a fundamental
research-driven approach. Founded in 1976, Essex is led by its founder, Chairman
and Chief Investment Officer, Joseph C. McNay, along with a management group led
by Stephen D. Cutler, President, and Stephen R. Clark, Executive Vice President.
Essex provides investment advisory services to defined benefit plans,
endowments, foundations, partnerships and private individuals and acts as a
subadviser to a mutual fund.
FIRST QUADRANT
First Quadrant specializes in asset allocation and style management on a
global basis. First Quadrant, L.P. is headed by Robert D. Arnott, its Chief
Executive Officer, a recognized leader in the field of quantitative investing,
and its sister company, First Quadrant Limited, is led by William A. R.
Goodsall. First Quadrant employs a highly disciplined quantitative methodology
to guide its investment strategy. First Quadrant seeks to add value by assessing
relative valuations across major segments of the portfolio: among asset classes,
across global markets, among equity styles and in currency allocation. First
Quadrant, L.P. has offices in Pasadena, California and Boston, while First
Quadrant Limited is based in London. First Quadrant also maintains joint
ventures with firms in Toronto, Tokyo and Paris.
GEOCAPITAL
Founded in 1979, GeoCapital invests in domestic growth and special situation
small-capitalization equities on behalf of corporations, retirement programs,
foundations, high net worth individuals and private partnerships. Based in New
York, the firm is led by its Chairman and Chief Investment Officer, Irwin
Lieber, and its President, Barry K. Fingerhut.
GOFEN AND GLOSSBERG
Gofen and Glossberg is one of the oldest and most respected investment
counseling firms in the United States. Founded in 1932, the firm has a long
history of managing assets for prominent individuals, families, retirement
plans, foundations and endowments. Based in Chicago, the firm is led by its
President, William H. Gofen, and its Executive Vice President, Joseph B.
Glossberg.
HARTWELL
Founded in 1961, Hartwell is a New York-based growth stock manager, whose
clients include high net worth individuals, an offshore hedge fund and several
large private
34
<PAGE>
foundations. The management team at Hartwell is led by William C. Miller, IV.
PARADIGM
Paradigm is a New York-based leader in equity style management. Paradigm's
investment process typically begins by identifying several portfolio management
styles from a set of active managers with risk and return characteristics of the
chosen styles. The process then takes their portfolios and, using a proprietary
model, arrives at a smaller portfolio of stocks with risk and return
characteristics that match the larger group. Paradigm is led by James E.
Francis, President and Chief Executive Officer. Paradigm has a diversified
client list of public and private pension fund clients. AMG holds a minority
ownership interest in Paradigm.
RENAISSANCE
Based in Cincinnati, Ohio, Renaissance provides quantitatively-based
investment management strategies to a variety of institutional and individual
clients. The firm is led by Managing Directors Michael A. Schroer, Donald W.
Kennedy and Paul A. Radomski.
RORER
Rorer is a value-oriented equity and fixed income manager based in
Philadelphia which offers four types of investment management accounts:
large-capitalization equity, mid-capitalization equity, balanced and fixed
income. Founded in 1978, Rorer is led by its founder Edward C. Rorer, Chairman
and Chief Investment Officer, and a committee including James G. Hesser,
President, and Clifford B. Storms, Jr., Director of Research.
SKYLINE
Skyline is a Chicago-based firm which specializes in small-capitalization
and mid-capitalization value equities. Skyline manages assets for institutional
clients, as well as three no-load mutual funds, SKYLINE SPECIAL EQUITIES,
SKYLINE SMALL-CAP VALUE PLUS and SKYLINE SMALL-CAP CONTRARIAN. The firm is led
by its President, William Dutton, who was named Morningstar Portfolio Manager of
the Year in 1992.
SYSTEMATIC
Located in Teaneck, New Jersey, Systematic manages assets on behalf of a
variety of corporations, jointly-trusteed and public pension funds as well as
for high net worth individuals, principally through wrap programs. Systematic is
led by its Chief Investment Officer Gyanendra (Joe) Joshi. Systematic offers
three products: core value equity, small-capitalization value equity and free
cash flow value equity.
TWEEDY, BROWNE
Tweedy, Browne is recognized as a leading practitioner of the value-oriented
investment approach first advocated by Benjamin Graham. Tweedy, Browne manages
domestic, international and global equity portfolios for institutions,
individuals, partnerships and mutual funds. The firm, which is the successor to
Tweedy & Co., a brokerage firm founded in 1920, is led by Christopher H. Browne,
William H. Browne and John D. Spears. Based in New York, the firm also maintains
a research office in London.
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<PAGE>
SELLING STOCKHOLDERS
The following table sets forth the number of shares of our Common Stock
beneficially owned by each selling stockholder as of December 31, 1998, the
number of shares which each selling stockholder will sell in this offering and
the number of shares which each selling stockholder will beneficially own upon
completion of this offering. The selling stockholders have furnished to us the
information set forth below and this information is accurate to the best of our
knowledge.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING (2) AFTER OFFERING(2)
------------------------ SHARES TO ------------------------
NAME(1) SHARES PERCENT BE SOLD SHARES PERCENT
----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Chase Equity Associates, L.P.(3)...................... 1,666,650 8.6% 394,721 1,271,929 5.5%
BankAmerica Corporation(4)............................ 1,305,160 6.8 200,000 1,105,160 4.7
TA Associates Group(5)................................ 858,821 4.5 429,410 429,411 1.8
William J. Nutt(6).................................... 600,741 3.1 50,000 550,741 2.4
Hartford Accident and Indemnity Company............... 373,150 1.9 200,000 173,150 *
Irwin Lieber(7)....................................... 265,972 1.4 26,600 239,372 1.0
Sean M. Healey(8)..................................... 255,431 1.3 40,000 215,431 *
Chestnut Group(9)..................................... 225,444 1.2 112,723 112,721 *
Barry K. Fingerhut(10)................................ 185,661 * 20,000 165,661 *
Levon Chertavian, Jr.(11)............................. 101,722 * 7,500 94,222 *
Nathaniel Dalton(12).................................. 78,708 * 20,000 58,708 *
Seth W. Brennan(13)................................... 40,528 * 10,000 30,528 *
Jeffrey S. Murphy(14)................................. 24,761 * 8,400 16,361 *
Jonathan Lieber(15)................................... 17,476 * 3,000 14,476 *
Seth Lieber(16)....................................... 17,476 * 4,000 13,476 *
Andrew Fingerhut...................................... 15,582 * 2,000 13,582 *
Dana Lieber........................................... 15,582 * 1,600 13,982 *
After the offering, our executive officers and directors will hold 1,977,802 shares (including shares subject to vested
and unvested options).
</TABLE>
- ------------------------
* Less than 1%
(1) The address of Chase Equity Associates, L.P. is 380 Madison Avenue, 12(th)
Floor, New York, New York 10017. The address of the TA Associates Group is
c/o TA Associates, Inc., High Street Tower, Suite 2500, 125 High Street,
Boston, Massachusetts 02110-2720. The address of BankAmerica Corporation is
100 North Tryon Street, Charlotte, North Carolina 28255. The address of
Hartford Accident and Indemnity Company is c/o The Hartford Investment
Management Company, 55 Farmington Avenue, Hartford, Connecticut 06105. The
address of the Chestnut Group is c/o MVP Ventures, 288 Littleton Road, Suite
25, Westford, MA 01886. The address of Messrs. I. Lieber, B. Fingerhut, J.
Lieber, A. Fingerhut and S. Lieber and Ms. Lieber is c/o GeoCapital, LLC,
767 Fifth Avenue, 45th Floor, New York, New York 10153-4590. The address of
all other listed stockholders is c/o Affiliated Managers Group, Inc., Two
International Place, 23rd Floor, Boston, Massachusetts 02110.
(2) In computing the number of shares of voting Common Stock beneficially owned
by a person, shares of voting Common Stock subject to options and warrants
held by that person that are currently exercisable or that become
exercisable within 60 days of December 31, 1998 and shares of voting Common
Stock issuable upon conversion of currently convertible securities or
securities that could become convertible held by that person are deemed
outstanding. For
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<PAGE>
purposes of computing the percentage of outstanding shares of voting Common
Stock beneficially owned by such person, the shares subject to options or
warrants or underlying convertible securities that are currently exercisable
or convertible or that become exercisable or convertible within 60 days of
December 31, 1998 are deemed to be outstanding for such person but are not
deemed to be outstanding for purposes of computing the ownership percentage
of any other person. As of December 31, 1998, a total of 19,282,559 shares
of Common Stock were deemed to be outstanding.
(3) The 1,666,650 shares beneficially owned by Chase Equity Associates, L.P. are
shares of non-voting Class B Common Stock, convertible under some
circumstances into voting Common Stock.
(4) The 1,305,160 shares beneficially owned by BankAmerica Corporation include
(i) 750,000 shares of Common Stock and 220,150 shares of non-voting Class B
Common Stock beneficially owned by NationsBanc Investment Corporation; (ii)
235,800 shares beneficially owned by NationsBank, N.A., of which 206,400
shares are held by Trade Street Investment Associates, Inc., of which
122,700 shares are under the discretionary authority of NationsBanc
Advisors, Inc.; (iii) 90,400 shares beneficially owned by Bank of America
National Trust and Savings Association; and (iv) 8,810 shares held by
BankAmerica Capital Corporation. BankAmerica Corporation is a bank holding
company and the direct or indirect parent of NationsBanc Investment
Corporation, Bank of America National Trust and Savings Association,
BankAmerica Capital Corporation and NB Holdings Corporation. NB Holdings
Corporation is a holding company and the direct parent of NationsBanc
Investment Corporation and NationsBank, N.A. NationsBank, N.A. is a national
bank and the direct parent of Trade Street Investment Associates, Inc. and
NationsBanc Advisors, Inc.
(5) Includes (i) 446,941 shares owned by Advent Atlantic and Pacific II L.P.,
(ii) 161,152 shares owned by Advent Industrial II L.P., (iii) 217,372 shares
owned by Advent New York L.P., (iv) 24,338 shares owned by TA Associates VII
L.P., (v) 4,509 shares owned by TA Associates, Inc., and (vi) 4,509 shares
owned by TA Associates Service Corporation. The foregoing partnerships and
corporations are part of an affiliated group of investment partnerships and
other entities referred to, collectively, as the TA Associates Group. The
general partner of each of Advent Industrial II L.P. and Advent New York
L.P. is TA Associates VI L.P. The general partner of Advent Atlantic and
Pacific II L.P. is TA Associates AAP II Partners L.P. The general partner of
each of TA Associates VII L.P., TA Associates VI L.P. and TA Associates AAP
II Partners L.P. is TA Associates, Inc. TA Associates, Inc. is also the sole
stockholder of TA Associates Service Corporation. In such capacity, TA
Associates, Inc. exercises sole voting and investment power with respect to
all the shares of Common Stock held of record by the named partnerships or
corporations; individually no stockholder, director or officer of TA
Associates, Inc. is deemed to have or share such voting or investment power.
(6) Includes 5,823 shares of restricted Common Stock which will vest in March
1999 and 58,181 shares of Common Stock subject to options exercisable within
60 days. Excludes (i) 229,319 shares subject to unvested options and (ii)
89,139 shares held by irrevocable trusts for the benefit of members of Mr.
Nutt's immediate family of which Mr. Nutt is not a trustee, of which shares
Mr. Nutt disclaims beneficial ownership. Mr. Nutt is our President and Chief
Executive Officer and the Chairman of our Board of Directors.
(7) Mr. Lieber is the Chairman and Chief Investment Officer of GeoCapital, an
affiliate of AMG.
(8) Includes (i) 8,750 shares of restricted Common Stock which will vest in
March 1999, and (ii) 55,431 shares of Common Stock subject to options
exercisable within 60 days. Excludes 214,569 shares subject to unvested
options. Mr. Healey is our Executive Vice President.
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<PAGE>
(9) Includes 169,051 shares held by Chestnut III Limited Partnership and 56,393
shares held by Chestnut Capital International III Limited Partnership.
Messrs. Jonathan J. Fleming, Michael F. Schiavo, Peter A. Schober and John
G. Turner are the general partners of Chestnut III Management Limited
Partnership ("CMLP") and MVP Capital Limited Partnerhsip ("MVP"). CMLP has
voting and investment power to act for Chestnut III Limited Partnership. MVP
has voting and investment power to act for Chestnut Capital International
III Limited Partnership.
(10) Mr. Fingerhut is the President of GeoCapital, an affiliate of AMG.
(11) Includes (i) 6,250 shares of restricted Common Stock which will vest in
March 1999, and (ii) 19,222 shares of Common Stock subject to options
exercisable within 60 days. Excludes 63,278 shares subject to unvested
options. Mr. Chertavian is our Senior Vice President, Affiliate Support.
(12) Includes (i) 12,500 shares of restricted Common Stock which will vest in
May 1999, and (ii) 30,708 shares of Common Stock subject to options
exercisable within 60 days. Excludes 107,292 shares subject to unvested
options. Mr. Dalton is our Senior Vice President, General Counsel and
Secretary.
(13) Includes (i) 4,375 shares of restricted Common Stock which will vest in
March 1999, and (ii) 24,028 shares of Common Stock subject to options
exercisable within 60 days. Excludes 80,972 shares subject to unvested
options. Mr. Brennan is a Vice President of AMG.
(14) Includes (i) 2,500 shares of restricted Common Stock which will vest in
March 1999, and (ii) 13,861 shares of Common Stock subject to options
exercisable within 60 days. Excludes 54,139 shares subject to unvested
options. Mr. Murphy is a Vice President of AMG.
(15) Mr. Lieber is a portfolio manager with GeoCapital, an affiliate of AMG.
(16) Mr. Lieber is a portfolio manager with GeoCapital, an affiliate of AMG.
38
<PAGE>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement we filed with the
Securities and Exchange Commission ("SEC") to register the shares offered in
this offering. It does not repeat important information that you can find in our
registration statement or in the reports and other documents that we file with
the SEC. For further information about us and our Common Stock, you should read
the registration statement and the exhibits to the registration statement.
Statements contained in this prospectus concerning documents we have filed with
the SEC as exhibits to the registration statement or otherwise are not
necessarily complete and, in each instance, you should refer to the actual filed
document.
We have not authorized anyone to provide you any information different from
that contained in this prospectus. The Common Stock may be offered for sale only
in jurisdictions where offers and sales are permitted. The information contained
in this prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or of any sale of the
Common Stock.
In this prospectus, the terms or words "AMG," "we," "us," and "our" refer to
Affiliated Managers Group, Inc.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information electronically with the SEC. You may read and copy any document we
file at the SEC's public reference rooms at 450 Fifth Street, Mail Stop 1-2,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
from the New York Stock Exchange and at the SEC's website at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file with
them. This means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is an
important part of this prospectus and information that we file later with the
SEC will automatically update and supersede this information. We incorporate by
reference the documents listed below, and any future filings made by us with the
SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended:
- Registration Statement on Form 8-A filed on October 7, 1997,
- Annual Report on Form 10-K for the fiscal year ended December 31, 1997,
- Quarterly Report on Form 10-Q for the quarter ended March 31, 1998,
- Current Report on Form 8-K event date March 20, 1998,
- Amendment No. 1 to Current Report on Form 8-K/A event date March 20, 1998,
- Quarterly Report on Form 10-Q for the quarter ended June 30, 1998,
- Quarterly Report on Form 10-Q for the quarter ended September 30, 1998,
- Current Report on Form 8-K event date January 6, 1999,
- Current Report on Form 8-K event date February 1, 1999, and
- Current Report on Form 8-K event date February 1, 1999.
You may request a copy of these filings, at no cost, by writing or
telephoning us at Two International Place, 23(rd) Floor, Boston, MA 02110,
telephone (617) 747-3300, attention: Investor Relations.
39
<PAGE>
VALIDITY OF SECURITIES
The validity of the shares of Common Stock offered hereby will be passed
upon for AMG by Goodwin, Procter & Hoar LLP, Boston, Massachusetts, and for the
underwriters by Sullivan & Cromwell, New York, New York. Partners (or, in the
case of partners which are professional corporations, the sole stockholders of
such corporations) of Goodwin, Procter & Hoar LLP own at least 43,392 shares of
our Common Stock.
EXPERTS
The following financial statements have been incorporated by reference in
this prospectus in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing:
- the consolidated balance sheets of AMG as of December 31, 1996 and 1997
and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1997;
- the balance sheets of Essex Investment Management Company, Inc. as of
November 30, 1995, 1996 and 1997 and related statements of operations,
stockholders' equity and cash flows for each of the three years in the
period ended November 30, 1997;
- the statement of financial condition of GeoCapital Corporation as of
September 30, 1997 and the related statements of operations, changes in
stockholders' equity and cash flows for the year ended September 30, 1997;
- the statements of financial condition of Tweedy, Browne Company L.P. as of
October 8, 1997 and the related statements of operations, changes in
partners' capital and cash flows for the period January 1, 1997 through
October 8, 1997; and
- the statement of financial condition of Gofen and Glossberg, Inc. as of
May 6, 1997 and the related statements of operations, changes in
shareholders' equity and cash flows for the period January 1, 1997 through
May 6, 1997.
40
<PAGE>
UNDERWRITING
AMG, the selling stockholders and the underwriters for the offering (the
"Underwriters") named below have entered into an underwriting agreement with
respect to the shares being offered. Subject to certain conditions, each
Underwriter has severally agreed to purchase the number of shares indicated in
the following table. Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Morgan Stanley & Co. Incorporated and Schroder & Co. Inc. are the
representatives of the Underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
- --------------------------------------------------------------------------- -----------------
<S> <C>
Goldman, Sachs & Co........................................................ 1,072,490
Merrill Lynch, Pierce, Fenner & Smith Incorporated......................... 1,072,488
Morgan Stanley & Co. Incorporated.......................................... 1,072,488
Schroder & Co. Inc......................................................... 1,072,488
Barrington Research Associates, Inc........................................ 124,000
William Blair & Company, L.L.C............................................. 124,000
Chase Securities Inc....................................................... 124,000
CIBC Oppenheimer Corp...................................................... 124,000
Credit Lyonnais Securities (USA) Inc....................................... 124,000
First Union Capital Markets Corp........................................... 124,000
NationsBanc Montgomery Securities LLC...................................... 124,000
Prudential Securities Incorporated......................................... 124,000
Putnam, Lovell, de Guardiola & Thornton, Inc............................... 124,000
SG Cowen Securities Corporation............................................ 124,000
-----------------
Total................................................................ 5,529,954
-----------------
-----------------
</TABLE>
------------------------
If the Underwriters sell more shares than the total number set forth in the
table above, the Underwriters have an option to buy up to an additional 570,046
shares from AMG to cover such sales. They may exercise that option for 30 days.
If any shares are purchased pursuant to this option, the Underwriters will
severally purchase shares in approximately the same proportion set forth in the
table above.
The following tables show the per share and total underwriting discounts and
commissions to be paid to the underwriters by AMG and the selling stockholders.
Such amounts are shown assuming both no exercise and full exercise of the
Underwriters' option to purchase 570,046 additional shares.
Paid by AMG
<TABLE>
<CAPTION>
No Exercise Full Exercise
------------- -------------
<S> <C> <C>
Per Share............... $ 1.322 $ 1.322
Total................... $ 5,288,000 $ 6,041,601
</TABLE>
Paid by the Selling Stockholders
<TABLE>
<CAPTION>
No Exercise Full Exercise
------------- -------------
<S> <C> <C>
Per Share............... $ 1.322 $ 1.322
Total................... $ 2,022,599 $ 2,022,599
</TABLE>
Shares sold by the Underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the Underwriters to securities dealers may be sold at a discount
of up to $0.79 per share from the initial public offering price. Any such
securities
U-1
<PAGE>
dealers may resell any shares purchased from the Underwriters to other brokers
or dealers at a discount of up to $0.10 per share from the initial public
offering price. If all the shares are not sold at the initial offering price,
the representatives of the Underwriters may change the offering price and the
other selling terms.
AMG and all of its officers have agreed with the Underwriters not to dispose
of or hedge any of their Common Stock or securities convertible into or
exchangeable for shares of Common Stock during the periods from the date of this
prospectus continuing through the date 90 days after the date of this
prospectus, except with the prior written consent of the representatives of the
Underwriters other than in the case of issuances by AMG in connection with
acquisitions. All of the other selling stockholders and all of the other
directors of AMG have agreed with the Underwriters not to dispose of or hedge
any of their Common Stock or securities convertible into or exchangeable for
shares of Common Stock during the periods from the date of this prospectus
continuing through the date 60 days after the date of this prospectus, except
with the prior written consent of the representatives of the Underwriters. This
agreement does not apply to any existing employee benefit plans. See "Risk
Factors-- Shares Eligible for Future Sale" for a discussion of certain transfer
restrictions.
In connection with this offering, the Underwriters may purchase and sell
shares of Common Stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the Underwriters of a greater
number of shares than they are required to purchase in this offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the Common
Stock while this offering is in progress.
The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such Underwriter in stabilizing or short-covering
transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the Common Stock. As a result, the price of the
Common Stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
Underwriters at any time. These transactions may be effected on the NYSE, in the
over-the-counter market or otherwise.
The Underwriters and their affiliates have in the past provided, and may in
the future from time to time provide, investment banking and general financing
and banking services to AMG or one or more of the affiliates, for which they may
receive customary fees. Among other things, Goldman, Sachs & Co. acted as
financial advisor to, and received a customary fee from, the partners of Tweedy,
Browne in connection with AMG's investment in Tweedy, Browne in 1997.
Because affiliates of the Underwriters will receive in the aggregate more
than 10% of the net proceeds of this offering, this offering is being made
pursuant to Rule 2710(c)(8) of the Conduct Rules of the National Association of
Securities Dealers, Inc. In particular, The Chase Manhattan Bank, an affiliate
of Chase Securities Inc., one of the Underwriters, is administrative agent and a
lender under AMG's credit facility and will receive a portion of the amounts
repaid under that facility with the net proceeds to AMG from the shares sold by
it. See "Use of Proceeds". Chase Securities Inc. is also an affiliate of Chase
Equity Associates, L.P., one of the selling stockholders. See "Selling
Stockholders".
AMG has agreed to pay its and the selling stockholders' shares of the total
expenses of this offering, which, excluding underwriting discounts and
commissions, it estimates will be $942,000.
AMG and the selling stockholders have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
U-2
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No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under the circumstances and in the
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 11
Use of Proceeds........................ 21
Dividend Policy........................ 21
Capitalization......................... 22
Dilution............................... 23
Recent Developments.................... 24
Business............................... 28
Selling Stockholders................... 36
About This Prospectus.................. 39
Where You Can Find More Information.... 39
Validity of Securities................. 40
Experts................................ 40
Underwriting........................... U-1
</TABLE>
5,529,954 Shares
AFFILIATED
MANAGERS GROUP, INC.
Common Stock
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GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
SCHRODER & CO. INC.
Representatives of the Underwriters
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