I agree that FS has likely increased the price following the rise in profitability, and I also think a merger is likely at some point. However, I don’t see any urgency for AEF to merge.
AEF has the stronger business by far, with better screening processes that are centralised across funds, allowing them to grow organically, along with a stronger brand. They also have an immaculate balance sheet and room for cost efficiencies. In contrast, FS has achieved much of its growth through acquisitions, which are not only less value-accretive for shareholders but also create significant inefficiencies, as different products are built around completely different governing principles and documents.
AEF is well-positioned to outperform over the long term, and rushing into a merger now could pressure management into overpaying.
AEF Price at posting:
$5.68 Sentiment: Buy Disclosure: Held
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