Executive Summary / Key Takeaways

• Victory Capital operates a differentiated model combining boutique investment expertise with a highly scalable, centralized operating and distribution platform, driving industry-leading margins and strong cash flow.
• The recently closed acquisition of Amundi US, rebranded Pioneer Investments, is a transformative event, significantly increasing AUM scale, diversifying the business across asset classes, vehicles (UCITS), and geographies (non-U.S. clients), and enhancing distribution capabilities domestically and globally.
• Management anticipates low double-digit EPS accretion from the Amundi transaction within the first full year, supported by $110 million in net expense synergies expected within two years, with the majority realized in the first year.
• The company is experiencing positive underlying flow momentum, particularly in ETFs and the institutional channel, and expects enhanced distribution post-Amundi to accelerate organic growth.
• With a significantly strengthened balance sheet and reduced leverage post-Amundi, Victory Capital is actively pursuing further strategic, larger-scaled acquisitions in an industry management believes is entering a phase of accelerated consolidation.

A Differentiated Model in a Consolidating Industry

Victory Capital Holdings, Inc. ($VCTR) has carved out a distinct identity in the competitive asset management landscape since its management-led buyout in 2013. The company operates a "next-generation business model" that seeks to blend the specialized expertise and investment focus of autonomous "boutique" Investment Franchises with the efficiency and scale benefits of a centralized operating and distribution platform. This structure is foundational to Victory's strategy for profitable growth, enabling it to offer a wide array of investment products across various asset classes and vehicles, including mutual funds, ETFs, separate accounts, and alternative investments.

The asset management industry is characterized by intense competition, facing pressures from fee compression, the rise of passive investing, and evolving client demands. Larger players like BlackRock (BLK) leverage immense scale and technological dominance, particularly in the ETF space, while firms like Invesco (IVZ), T. Rowe Price (TROW), and Franklin Resources (BEN) compete across various active and passive strategies, distribution channels, and global markets. Victory's competitive positioning is rooted in its operational model, which aims to deliver superior efficiency and profitability compared to many peers. While lacking the sheer scale of a BlackRock or the extensive global footprint of an Invesco or Franklin Resources, Victory's centralized platform is designed for high scalability, potentially offering lower operating costs per AUM unit. This efficiency is reflected in its consistently strong Adjusted EBITDA margins, which have expanded significantly over the years and remain ahead of its long-term guidance, even amidst market volatility.

At the core of Victory's operational advantage is its integrated technology platform. This platform supports all Investment Franchises and the Solutions Platform, handling critical functions like trading, compliance, reporting, fund administration, and distribution. While specific quantitative metrics on the platform's processing speed or cost advantage relative to competitors are not detailed, management emphasizes its role in enabling significant operating leverage and supporting the variable expense model. This technological infrastructure allows investment professionals to focus on portfolio management while centralizing administrative and operational burdens. Strategic investments in data, technology, marketing, and intermediary partnerships are ongoing initiatives aimed at enhancing this platform's capabilities and accelerating organic growth, particularly within the U.S. distribution channels and the burgeoning ETF business.

Victory's history is marked by strategic acquisitions that have been instrumental in building scale and diversifying its capabilities. Key transactions, such as acquiring an ETF platform in 2015 and adding alternative investments (NEC) and ETF strategy expertise (WestEnd) in 2021, demonstrate a deliberate approach to inorganic growth. These deals have not only expanded the product set but also reinforced the effectiveness of Victory's integration playbook, which management views as a core corporate capability.

Performance Reflecting Strategy and Market Dynamics

Victory's recent financial performance underscores the effectiveness of its operating model and strategic initiatives, even as it navigates market fluctuations and prepares for significant integration. For the three months ended March 31, 2025, total revenue was $219.6 million, a 2.1% increase compared to the same period in 2024, primarily driven by higher average AUM year-over-year. Investment management fees rose to $173.3 million, while fund administration and distribution fees remained relatively stable at $46.3 million.

Operating expenses totaled $126.7 million in Q1 2025, down from $131.0 million in Q1 2024. This decrease was influenced by lower personnel compensation and benefits (partially due to reduced contingent payment expense and deferred compensation fluctuations) and lower distribution expenses. However, acquisition-related costs saw a significant increase to $8.8 million in Q1 2025, primarily due to the Amundi US transaction, up from $1.0 million in Q1 2024. The change in the value of contingent consideration payable for the WestEnd acquisition also impacted results, with a $3.4 million increase in Q1 2025 compared to a $12.2 million increase in Q1 2024.

Net income for Q1 2025 was $62.0 million, resulting in diluted earnings per share of $0.96, compared to $55.7 million and $0.84 per diluted share in Q1 2024.

Adjusted EBITDA reached $116.4 million, with an Adjusted EBITDA margin of 53.0%, an expansion from 52.1% in the prior year period, demonstrating continued operational efficiency despite seasonal cost increases.

Assets Under Management (AUM) ended Q1 2025 at $167.5 billion, a decrease of 2.6% from $171.9 billion at December 31, 2024. This decline was driven by negative market action ($3.2 billion) and net outflows ($1.2 billion). However, management highlighted that excluding two large, one-time redemptions totaling $2.7 billion, net flows would have been positive for the quarter. Gross sales improved significantly, reaching $9.5 billion in Q1 2025, including $9.3 billion in long-term gross flows.

Flow trends by asset class and vehicle show diversification. Solutions AUM increased year-over-year, reaching $63.4 billion, partly driven by momentum in the VictoryShares ETF platform. ETF AUM grew substantially, reaching $10.3 billion by March 31, 2025, up from $5.2 billion a year prior, reflecting a 28% increase during the quarter alone. Management views ETFs as high-margin products and a key area for accelerated organic growth, with several new launches planned. The institutional channel has also shown strength, posting positive net flows in recent quarters and contributing to a sizable "won but not yet funded" pipeline.

The Amundi Transformation and Future Trajectory

The closing of the Amundi US acquisition on April 1, 2025, marks a pivotal moment for Victory Capital. This transaction, which involved the contribution of Amundi's U.S. business in exchange for a 26.1% economic interest (4.9% voting rights) in Victory, fundamentally reshapes the company's scale and diversification. Post-closing, total client assets are expected to exceed $286 billion.

The acquisition significantly diversifies Victory's AUM mix. Fixed Income AUM is expected to double as a percentage of total assets (from 14% to 28%), and the company gains $26.5 billion in UCITS assets, a vehicle wrapper crucial for non-U.S. distribution. Crucially, the proportion of AUM sourced from clients outside the U.S. increases dramatically, from less than 5% to approximately 15% ($44 billion), providing a new dimension of geographic diversification. The acquired Amundi US business, rebranded Pioneer Investments, demonstrated strong performance prior to closing, with positive net long-term flows and over 74% of its mutual fund AUM rated 4 or 5 stars by Morningstar as of March 31, 2025.

A cornerstone of the Amundi transaction is the exclusive 15-year global and reciprocal distribution agreements. Amundi becomes the exclusive distributor of Victory products outside the U.S., leveraging its vast network in over 60 countries and relationships with numerous distributors and institutional clients. Victory, in turn, becomes the exclusive distributor of Amundi products in the U.S. This partnership is expected to be a significant driver of future organic growth, opening up new international markets for Victory's strategies and providing access to non-U.S. manufactured products for distribution in the U.S. Plans are already underway to launch vintage Victory strategies in the UCITS format and to develop ETFs for the Pioneer investment franchise using Victory's existing platform.

Financially, the Amundi transaction is expected to be low double-digit EPS accretive by the end of the first full year of ownership. This accretion is supported by anticipated net expense synergies of $110 million within two years of closing, with the majority expected in the first year. While management anticipates a slight, immaterial decline in Adjusted EBITDA margins in the near term as integration efforts continue and planned investments are phased in, they remain confident in achieving their long-term guidance of 49% margins once fully integrated, citing the inherent scalability and variable cost structure of their operating model.

The equity-financed nature of the Amundi acquisition significantly strengthens Victory's balance sheet. Bringing on substantial earnings without additional debt is expected to reduce the net leverage ratio to the low 1s post-closing, down from 1.7 times at March 31, 2025. This enhanced financial flexibility positions Victory to continue its strategic capital allocation priorities.

While share repurchases were restricted during the Amundi negotiations and proxy process, the company has a new $200 million share repurchase program authorized and intends to execute opportunistically. The company also increased its quarterly cash dividend to $0.49 per share, payable in June 2025, and anticipates returning to an annual dividend increase cycle.

Management is actively engaged in M&A discussions and believes the industry is entering a period of accelerated consolidation. With a strengthened balance sheet and a proven integration track record, Victory is well-positioned to be a willing and active participant, leaning towards larger-scaled opportunities that can further enhance its competitive standing and drive future growth. The company is also exploring strategic expansion into areas like private markets, evaluating both acquisition and partnership models.

Risks and Considerations

Despite the positive outlook and strategic advancements, investors should consider potential risks. Victory's revenue and AUM remain sensitive to market fluctuations, client flows, and changes in fee rates, particularly if there is a shift towards lower-fee products or strategies. While the Amundi transaction diversifies the business, it also introduces integration risks and potential challenges in realizing the full scope of anticipated synergies and growth opportunities, particularly in new international markets with differing regulatory environments. The company is exposed to exchange rate risk on non-U.S. dollar denominated AUM and interest rate risk on its variable rate debt, although the latter is partially mitigated by the amortization of the monetized interest rate swap gain. Contingent consideration obligations related to past acquisitions, such as WestEnd, also represent potential future cash outflows. While recent stockholder litigation related to the Amundi transaction was discontinued, legal and regulatory risks are inherent in the industry.

Conclusion

Victory Capital stands at a significant inflection point following the transformative Amundi US acquisition. The company's differentiated operating model, characterized by operational efficiency and a scalable technology platform, has consistently delivered strong financial results and industry-leading margins. The Amundi transaction propels Victory into a new league of scale and diversification, significantly expanding its reach across asset classes, vehicles, and crucial international markets.

With a strengthened balance sheet and a proven M&A playbook, Victory is strategically positioned to capitalize on the accelerating trend of industry consolidation, actively seeking larger opportunities to enhance its competitive standing. While integration efforts and market dynamics present potential challenges, the anticipated synergies, enhanced distribution capabilities, and underlying positive flow momentum, particularly in high-growth areas like ETFs, underpin a compelling investment thesis centered on continued profitable growth and value creation in a rapidly evolving asset management landscape. The successful execution of the Amundi integration and the ability to leverage the expanded platform for both organic and inorganic growth will be critical factors for investors to monitor.