UBS is reportedly mulling takeovers to bolster its asset management arm, and GAM's troubles have put the Swiss asset manager into play. Some investors are betting on a tie-up between the two. 

Swiss bank UBS is reportedly on the lookout for acquisitions to strengthen its asset management arm, according to a news report. The bank didn't comment on the report, which sparked a brief rally in GAM stock. 

The troubled Swiss asset manager surged by as much as 5 percent on Wednesday. GAM has shed nearly half of its market capitalization in the last three months after suspending star fund manager Tim Haywood and later gating, then liquidating his funds.

Salvaging Wreckage

The suspension, set into motion by a whistleblower, has wrought havoc on GAM's business: the Zurich-based firm posted massive third-quarter outflows last week. Previously described as a toxic takeover candidate, GAM has few options to salvage the wreckage.

GAM's board said only that it is looking at all options to appease shareholders – the asset manager is now firmly in play. It is UBS, of all companies, which is giving battered GAM investors a shimmer of hope: the Swiss bank's asset management head, Ulrich Koerner, said he would consider acquisitions.

Grasping at Straws

The response of GAM's stock on Wednesday illustrates how frustrated investors are with the situation, and and how willing to grasp at straws (GAM stock surged 18 percent several weeks ago after the company was reported to be talking to potential acquirers).

Would UBS swallow GAM? To be sure, size wouldn't be an issue: GAM is worth less than $1 billion at the moment, and the asset manager undoubtedly has a range of successful strategies and funds which are still drawing in net new money.

Public Offer vs Private Deal

UBS is reportedly not planning any major deals, but smaller targets to round out its business. Would UBS launch a public offer for GAM, just to round out part of its asset management business, when it could probably just as easily do a quiet and private boutique deal elsewhere?

The size could fit: GAM's $67 billion in assets represent a bolt-on deal for UBS, which manages north of $800 billion. Whether there is substance to GAM investors' hopes is unclear, but a tie-up with UBS would represent coming full circle for the 34-year-old asset manager.

Coming Full Circle

UBS bought GAM from Gilbert de Bottom, widely considered to the inventor of open architecture or multi-manager in asset management, in 1999. By 2005, UBS had tired of its new acquisition, and offloaded it to Julius Baer along with three private banks for $5.6 billion.

Four years later, GAM left Julius Baer as part of a carve-out from the bank, at a price of 12 Swiss francs per share – the stock is now worth less than half that. GAM might be a bargain, but remains hard to gauge given its outflows and tanking revenue.