Form S-1
Table of Contents

As filed with the Securities and Exchange Commission on July 1, 2011

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

MANNING & NAPIER, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   6282   45-2609100

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

290 Woodcliff Drive

Fairport, New York 14450

(585) 325-6880

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Richard B. Yates

Chief Legal Officer

Manning & Napier, Inc.

290 Woodcliff Drive

Fairport, New York 14450

(585) 325-6880

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Harold Levine

Irwin A. Kishner

Herrick, Feinstein LLP

2 Park Avenue

New York, New York 10016

(212) 592-1400

 

Raymond B. Check

Cleary Gottlieb Steen & Hamilton LLP

One Liberty Plaza

New York, New York 10006

(212) 225-2000

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ¨   Accelerated filer  ¨
Non-accelerated filer  þ (Do not check if a smaller reporting  company)   Smaller reporting company  ¨

 

 

CALCULATION OF REGISTRATION FEE

 

Title of each class of securities to be registered

   Proposed maximum aggregate
offering price (1)(2)
     Amount of
registration fee
 

Class A common stock, $0.01 par value per share

   $ 250,000,000       $ 29,025   

 

(1) Includes              additional shares of Class A common stock which the underwriters have the option to purchase to cover overallotments, if any.

 

(2) Estimated solely for purposes of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Subject to Completion

Preliminary Prospectus dated July 1, 2011

PROSPECTUS

             Shares

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Class A Common Stock

 

 

This is Manning & Napier, Inc.’s initial public offering. We are selling              shares of our Class A common stock and the selling stockholder is selling              shares of our Class A common stock. We will not receive any proceeds from the sale of shares to be offered by the selling stockholder.

We expect the public offering price to be between $         and $         per share. Currently, no public market exists for the shares. After pricing of the offering, we expect that the shares will trade on the              under the symbol “MN.”

Upon completion of this offering, William Manning, our Chairman and controlling stockholder, will hold a majority of the combined voting power of our capital stock through his ownership of 100% of our outstanding Class B common stock.

Investing in our Class A common stock involves risks that are described in the “Risk Factors” section beginning on page 16 of this prospectus.

 

 

 

    

Per Share

    

Total

 

Public offering price

   $         $     

Underwriting discount

   $         $     

Proceeds, before expenses, to us

   $         $     

Proceeds, before expenses, to the selling stockholder

   $         $     

The underwriters may also exercise their option to purchase up to an additional              shares of the Class A common stock from us at the public offering price, less the underwriting discount, for 30 days after the date of this prospectus to cover overallotments, if any.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The shares will be ready for delivery on or about                     , 2011.

 

 

BofA Merrill Lynch

 

 

The date of this prospectus is                     , 2011.


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TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1   

Risk Factors

     16   

Forward Looking Statements

     35   

Our Structure And Reorganization

     36   

Use Of Proceeds

     46   

Dividend Policy

     47   

Capitalization

     48   

Dilution

     49   

Unaudited Pro Forma Combined Consolidated Financial Information

     50   

Selected Historical Combined Consolidated Financial And Other Data

     57   

Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

     60   

Business

     82   

Regulatory Environment And Compliance

     94   

Management

     97   

Executive Compensation

     101   

Certain Relationships And Related Party Transactions

     114   

Principal And Selling Stockholders

     115   

Description Of Capital Stock

     117   

Shares Eligible For Future Sale

     120   

Material U.S. Federal Tax Considerations For U.S. And Non-U.S. Holders Of Our Class A Common Stock

     122   

Underwriting

     126   

Legal Matters

     132   

Experts

     132   

Where You Can Find Additional Information

     132   

Index To Combined Consolidated Financial Statements

     F-1   

 

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We are responsible for the information contained in this prospectus and in any free writing prospectus we may authorize to be delivered to you. We have not, and the selling stockholder and the underwriters have not, authorized anyone to give you any other information, and take no responsibility for any other information that others may give you. We and the selling stockholder are offering to sell, and seeking offers to buy, shares of our Class A common stock 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 our Class A common stock.

 

 

BASIS OF PRESENTATION

Except as otherwise indicated herein or as the context otherwise requires, in this prospectus:

 

   

“Manning & Napier,” “the Company,” “we,” “our,” and “us” refers to Manning & Napier, Inc. and, unless the context otherwise requires, its direct and indirect subsidiaries, including Manning & Napier Group, and predecessors, including the Manning & Napier Companies;

 

   

“Manning & Napier Group” refers to Manning & Napier Group, LLC, a limited liability company organized under the laws of the State of Delaware, and, unless the context otherwise requires, its direct and indirect subsidiaries and predecessors;

 

   

“M&N Group Holdings” refers to M&N Group Holdings, LLC, a limited liability company organized under the laws of the State of Delaware;

 

   

“Manning & Napier Companies” refers to, collectively, Manning & Napier Advisors, Inc., or MNA, Manning & Napier Advisory Advantage Corporation, or AAC, Manning & Napier Alternative Opportunities, Inc., or MNAO, Manning & Napier Capital Company, LLC, or MNCC, Manning & Napier Investor Services, Inc., or MNBD, Manning & Napier Information Services, LLC, or MNIS, and Perspective Partners LLC, or PPI, each as in effect prior to the reorganization transactions;

 

   

“Manning & Napier Associates” refers to Manning & Napier Associates, LLC, a limited liability company organized under the laws of the State of New York and an affiliate of Manning & Napier.

 

   

“this offering” refers to the offering of our Class A common stock offered hereby;

 

   

“collective investment trusts” refers to the pools of retirement plan assets maintained by a bank or trust company that we manage;

 

   

“portfolios” refers to the separate accounts in which we manage our clients’ investments and the mutual funds, collective investment trusts or other pooled investment vehicles for which we are investment adviser or sub-advisor;

 

   

“management services” refers to the investment management services we provide to clients who engage us to manage their investments; and

 

   

“client” and “clients” refer to investors who access our management services.

In this prospectus, we rely on and refer to certain market and industry data and forecasts related thereto. We obtained this information and these statistics from sources other than us, which we have supplemented where necessary with information from publicly available sources and our own internal estimates. We use these sources and estimates and believe them to be reliable, but we cannot give you any assurance that any of the projected results will be achieved.

None of the information in this prospectus or the registration statement of which this prospectus forms a part constitutes either an offer or a solicitation to buy or sell any of our products, nor is any such information a recommendation for any of our products or management services.

 

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary may not contain all of the information that may be important to you. You should read the entire prospectus carefully together with our combined consolidated financial statements and the related notes appearing elsewhere in this prospectus before you decide to invest in our Class A common stock. This prospectus contains forward-looking statements, which involve risks and uncertainties. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of certain factors, including those discussed under the heading “Risk Factors” and other sections of this prospectus.

Overview

We are an independent investment management firm that provides a broad range of investment solutions through separately managed accounts, mutual funds and collective investment trust funds. Founded in 1970, we offer equity and fixed income portfolios as well as a range of blended asset portfolios, such as life cycle funds, that use a mix of stocks and bonds. Since 1999, we have achieved strong relative growth in discretionary assets under management, or AUM. From December 31, 1999 through March 31, 2011, our AUM has increased from $6.9 billion to $42.6 billion, representing a compound annual growth rate of 17.5% during a period that included two significant bear markets. Our growth in AUM resulted in an increase in our revenues from $50.2 million for the year ended December 31, 1999 to $255.5 million for the year ended December 31, 2010.

LOGO

 

Note: Reflects our AUM over the periods indicated compared to the performance of the market, represented by the benchmarked return of the S&P 500 relative to its level at the end of 1999. Data as of December 31 of each respective year, unless otherwise indicated.

We employ a disciplined investment process that seeks to avoid areas of speculation and invest in what we view as under-valued market segments, under the principle that today’s market prices drive future potential investment return. Initially, this approach helped us build a strong client base of high net worth individuals and middle market institutions, and we maintain these relationships in many targeted geographic regions. This foundation allowed us to expand our business to serve the needs of larger institutions, investment consultants and other intermediaries, which has been a strong driver of recent growth.

We have focused on building an internal organization of specialists to provide additional consultative services beyond investment management, which we believe helps us build close relationships with our clients through multiple service touch points and a solutions-oriented approach. Taken together with strong investment performance across portfolios, our consultative, total-solutions approach has allowed us to achieve a significantly lower-than-industry average annual separate account cancellation rate through difficult market environments. According to Cerulli Associates, the average annual industry redemption rate, or cancellation rate, for separate accounts was 23.3% for the period 2002 through 2010 and 24.9% over the last five years ending December 31,

 

 

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2010, as compared to our average annual cancellation rates of 3.9% and 3.6%, respectively, during such periods. We have experienced net positive cash flows in both our separate accounts and our mutual funds for each of the last four years and thus far in 2011.

Our research process is analyst- and team-driven. Our mutual funds have earned a number of industry accolades, including a finalist ranking for Morningstar’s international manager of the decade and multiple Lipper awards. As of March 31, 2011, 15 of the 17 funds eligible for Morningstar ratings, representing 87% of our total mutual fund AUM, are rated four or five stars by Morningstar. From January 1, 2000 through March 31, 2011, a period of time that included two significant bear markets, many of our mutual funds and similarly managed separate account portfolios experienced strong cumulative returns well in excess of the returns earned by broad equity market indexes.

LOGO

 

Note: Represents cumulative returns for the mutual funds set forth above from January 1, 2000 to March 31, 2011. Percentages in parentheses represent mutual fund equity range.

We have separate account portfolios that mirror each of the mutual funds illustrated above, each of which has earned similar cumulative investment returns to those we have earned for our mutual funds.

We offer our investment management capabilities primarily through direct sales to high net worth individuals and institutions, as well as through third-party intermediaries, including wirehouse brokers, independent financial advisors, and institutional investment consultants. Our AUM as of March 31, 2011 by investment vehicle, portfolios and distribution channel were as follows:

 

LOGO

As of March 31, 2011, we had 414 employees, including William Manning, our Chairman and controlling stockholder, and the 47 other employee-owners, most of whom are based in Fairport, New York.

 

 

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Immediately following the completion of this offering, these employee-owners will collectively own approximately     % of Manning & Napier Group, through which we conduct all of our business. Our culture of employee ownership strongly aligns our interests with those of our clients’ by delivering strong investment performance and solutions.

Industry Trends

We believe the following key market trends will continue to drive the growth of our business and increase the value of our service offerings:

Increased Focus on Management of Employee Benefit Plans. Rapidly rising healthcare costs are eroding the ability of many employees to fund adequate retirement savings and employers are increasingly concerned with the financial hurdles their employees face. According to Deloitte Consulting LLP, approximately 75% of employers surveyed indicate that they plan to make or have already made changes to the design of their health and welfare plans to address these concerns. At the same time, employees increasingly are looking for customized advice. We believe employers will be increasingly interested in working with providers that can take a holistic view of benefit plan design and can help solve problems with both retirement benefit plans and health benefit plans.

Growth of Defined Contribution Plans and Enhanced Role for Life Cycle Funds. We believe the large and growing retirement savings industry increasingly requires investment advice and retirement help for employees. As a result of the Pension Protection Act of 2006 and subsequent U.S. Department of Labor guidelines, plan sponsors are now actively seeking automatic retirement savings solutions for their employees. We expect auto-enrollment will be a driver of even greater participant balances in the future and life cycle funds, and target date funds in particular, will continue to see increased demand as more plan sponsors use such funds as the default option within their plans. Cerulli Associates estimates assets in life cycle funds will increase by 40% per year from 2009 through 2015. We believe life cycle and target date fund providers with a documented track record of proven results will garner increasing assets in this space, especially when bundled with broad employee education services.

Focus on Intergenerational Planning. A 2011 U.S. Trust survey of Americans with at least $3 million in investments indicates that nearly 40% do not have a comprehensive estate plan and more than 27% have never discussed intergenerational wealth transfer with their financial advisor. We anticipate significant opportunities for investment managers that can position themselves as trusted advisors to high net worth investors.

Heightened Interest in Risk Management. Following the credit crisis and global bear market in 2008 and early 2009, investors and financial advisors have become increasingly interested in absolute return strategies, or strategies that seek positive returns over full market cycles. A 2010 survey of financial advisors and brokers by Putnam Investments states that 59% of advisors were likely to recommend absolute return strategies to their clients. We believe our active and unconstrained investment approach within our blended asset class portfolios is well suited to meet the demand for absolute return strategies using traditional asset classes and is likely to be less expensive than alternative investment-based strategies with similar absolute return goals.

Demand for Non-U.S. Investments. With more than 50% of the global market capitalization represented by non-U.S. companies, U.S. investors are increasingly looking to diversify their assets through non-U.S. investments. We believe U.S. investors are under-allocated in global equities relative to global benchmarks, particularly in the defined contribution channel, with only 7% of defined contribution assets invested in non-U.S. equities. We believe investors will strive to select managers with experience and proven results to meet their more diversified and global investing requirements as well as those with the flexibility to allocate assets to and within foreign markets, among both developed and emerging countries.

 

 

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Our Competitive Strengths

Team-Based Investment Approach. We rely on a team-based investment approach and a robust investment process that has resulted in consistent returns over time that are well in excess of market benchmarks. Our investment team consists of 39 “bottom-up” equity research analysts with global industry responsibilities and 27 “top-down” economists, statistical analysts and fixed income analysts. Investment decisions are overseen by our Senior Research Group, which is a team of ten senior analysts who manage our portfolios. We believe this team approach, rather than relying on traditional individual portfolio managers, has provided and will continue to provide consistency to our investment process and results over the long-term.

Track Record of Consistent Investment Excellence through Multiple Market Cycles. We have a track record of superior long-term investment returns across our key portfolios relative to our competitors and the relevant benchmarks. Fifteen of our 17 mutual funds, representing more than $15 billion in AUM, have a Morningstar rating of 4 or 5 stars. Lipper Fund Awards 2010 named Manning & Napier’s World Opportunities Series as the “Best International Multi-Cap Core Fund over 10 years” and their 2011 Fund Awards named our International Series as the “Best International Multi-Cap Core Fund” over three years. Our track record of consistent outperformance is instrumental in attracting and retaining clients as well as in maintaining good relationships with consultants who recommend our services.

High Client Retention through a Solutions-Oriented Approach. Our average annual separate account cancellation rate was 3.6% over the last five years ending December 31, 2010, as compared to an industry rate of 25% according to Cerulli Associates. For many of our clients, we provide an array of services to help them identify their funding and investment requirements and then design solutions that are specific to the client’s needs. We believe our long history of providing consultative services to complement our investment process has allowed us to form stronger relationships with our clients and has helped to reduce turnover during challenging market environments.

Strong Record of Net New Business Generation. Our AUM and revenue has grown consistently over the period from December 31, 1999 to March 31, 2011 despite two bear markets. We have experienced positive net cash flows every quarter since the last stock market peak in the fourth quarter of 2007. Our contraction in AUM during the 2008-2009 market downturn was relatively mild primarily due to continued strong new business flows driven by our absolute return orientation and our low client cancellation rate. Our strong organic growth has allowed us to maintain positive revenue momentum during periods of sustained market declines and establish a solid base to build on during periods of economic expansion.

Culture of Product Innovation. We have a company-wide culture of product innovation that is designed to anticipate the needs of the clients we serve. For example, we developed our first life cycle mutual fund in 1993, when there were only seven life cycle funds listed on Morningstar. More recently, we launched technology driven products and services to assist both employers and employees with their health and wealth planning. Given our culture of innovation, we believe that we are well-positioned to take advantage of new opportunities in the ever-changing marketplace.

Diversified Client Base through Multiple Channels. We distribute our products and services through direct sales as well as by leveraged distribution through financial intermediaries, platforms and investment consultants. Overall, our client base is well-diversified across both individual and institutional client types, with our largest direct client relationship representing only 1.3% of our total AUM as of March 31, 2011. As of March 31, 2011, our largest third-party relationship accounted for approximately 5% of our total AUM. This broad distribution has made our business less susceptible to losses from any one client or channel and has contributed to the stability of our earnings.

 

 

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Experienced Management Team and Investment Professionals. In 2003, William Manning turned over management responsibilities to our current executive management team. This team has, on average, 22 years of experience with our company and an average of 28 years of experience in the asset management industry. Patrick Cunningham has been with us since 1992 and was named our chief executive officer in June 2010, and the majority of the members of our Senior Research Group started their investment careers with us. These long-standing tenures illustrate the continuity and commitment of our team that we believe will be important to our success in the future.

Our Strategy

Our strategy for continued success is focused on the following:

Expand our Direct Channel. Our high-touch direct distribution channel has allowed us to build strong relationships with our clients over time. We plan to expand our direct sales presence geographically, filling in new regions along the east coast and expanding farther west. Our direct channel will remain focused on identifying geographic regions within which our representatives form key relationships with centers of influence, business owners and other referral networks.

Broaden our Intermediary Channel. We are focused on the attractive 401(k) marketplace, which is characterized by positive cash flows and low cancellation rates. In addition to building relationships directly with plan sponsors, we are focusing our wholesale staff on identifying advisors and other financial intermediaries that work primarily with defined contribution plans. We expect significant future growth opportunities within this channel as we begin to target wire-house advisors, retirement plan advisors and other intermediaries that work with small- to mid-sized 401(k) plans.

Focus on the Convergence of Health and Wealth Benefits. Our strong relationship with employers positions us well for the opportunities provided by the convergence of health and wealth benefits in employer decision making. We are focused on providing consultative services to employers to address these key concerns through unique plan design alternatives and technology-based tools to help employers and advisors effectively reach large numbers of employees with tailored retirement and health plan guidance. We will continue to develop and potentially acquire products and services to help employers best address these key issues regarding retirement and health benefit plans.

Develop New Products in Response to Market Opportunities. The on-going development of products and consultative services in response to current and prospective client needs has been a source of significant growth. We remain committed to understanding the key areas of concern for various client types and developing solutions to meet these needs. Continued product and service development will likely require building additional resources and areas of expertise, and we are continuing to add resources where solving key problems can strengthen our relationships with clients.

Summary Risk Factors

An investment in our Class A common stock involves substantial risks and uncertainties. These risks and uncertainties include, among others, the following:

 

   

Our revenues are dependent on the market value and composition of our AUM, all of which are subject to fluctuation due to factors outside of our control.

 

   

The loss of key investment professionals or members of our senior management team could have an adverse effect on our business.

 

   

We derive substantially all of our revenues from contracts and relationships that may be terminated upon short or no notice.

 

 

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We may be required to reduce the fees we charge, which could have an adverse effect on our profit margins and results of operations.

 

   

Several of our portfolios involve investing principally in the securities of non-U.S. companies, which involve foreign currency exchange, tax, political, social and economic uncertainties and risks.

 

   

Control of a majority of the combined voting power of our capital stock by William Manning, and ownership of     % of Manning & Napier Group’s ownership interests by our existing owners, including William Manning, may give rise to conflicts of interest.

The foregoing is not a comprehensive list of the risks and uncertainties we face. Investors should carefully consider all of the information in this prospectus, including information under “Risk Factors,” prior to making an investment in our Class A common stock.

Structure and Reorganization

The diagram below depicts our organizational structure after the reorganization transactions and the consummation of this offering.

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(1) Represents Manning & Napier Advisors, Inc., Manning & Napier Advisory Advantage Corporation, Manning & Napier Investor Services, Inc. and Manning & Napier Alternative Opportunities, Inc.

 

(2) Represents (i) the newly formed limited liability companies which will have assets contributed by Manning & Napier Advisors, Inc., Manning & Napier Advisory Advantage Corporation, Manning & Napier Investor Services, Inc. and Manning & Napier Alternative Opportunities, Inc., and (ii) Perspective Partners LLC, Manning & Napier Information Services, LLC and Exeter Trust Company.

 

 

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Reorganization Transactions

We will enter into a series of transactions to reorganize our capital structure in connection with this offering. We refer throughout this prospectus to the transactions described below as the reorganization transactions or the reorganization.

Revisions to our Organizational Structure. Prior to the reorganization transactions and this offering, we were a group of privately-held, affiliated companies comprising the Manning & Napier Companies. Five of these companies were majority owned by William Manning, our Chairman and controlling stockholder, with a minority interest held by 47 of our employees, and two of these companies were majority owned by William Manning, with a minority interest held by B. Reuben Auspitz, our Vice-Chairman. See “Our Structure and Reorganization—Structure Prior to the Reorganization Transactions.”

Prior to the reorganization transactions and this offering, we had a mandatory redemption obligation upon the death of William Manning to pay a formula-derived amount to his estate. Our liability related to this mandatory redemption obligation was calculated each fiscal quarter, and the change in the liability was reflected as a non-cash interest expense. Such mandatory obligation will terminate immediately prior to the consummation of this offering and we will no longer reflect non-cash interest expense or the liability related to such obligation. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Capital Stock. Immediately prior to the consummation of this offering, we will amend and restate our certificate of incorporation to authorize two classes of common stock, Class A common stock and Class B common stock. We will issue shares of Class A common stock to the public pursuant to this offering and, immediately prior to the consummation of this offering, we will issue             shares of our Class B common stock to William Manning and              shares of our Class A common stock to the selling stockholder. Each share of Class A common stock will entitle its holder to one vote per share. The holder of our Class B common stock will have a majority of the combined voting power of our capital stock through his ownership of 100% of our outstanding Class B common stock. See “Description of Capital Stock.”

Equity Ownership Interests. In connection with the reorganization transactions, additional ownership interests in M&N Group Holdings will be granted to William Manning. In addition, certain of the Manning & Napier Companies will amend and restate their respective shareholders’ agreements, pursuant to which, among other things, the vesting terms related to the current ownership interests of our employees, including our named executive officers other than William Manning, will be amended. Such individuals will be entitled to 15% of their pre-reorganization ownership interests upon the consummation of this offering, and an additional 5% of such ownership interests will vest as of each of the first, second and third anniversaries of the consummation of this offering, provided such individuals are employed by us as of such date (employment-based vesting). The remaining ownership interests will be subject to performance-based vesting as of each of the first, second and third anniversaries of this offering (subject to an initial two-year lockup period and other selling restrictions), to be determined by a vesting committee of MNA (performance-based vesting). Such new vesting terms will not result in dilution to the number of outstanding shares of our Class A common stock. As a result of such vesting requirements, we will recognize non-cash compensation charges which will be fully realized by the end of 2014. We will also recognize an additional one-time non-cash compensation charge in 2011 related to the additional ownership interests that will be granted to William Manning.

Notwithstanding these vesting requirements, the amended and restated shareholders’ agreements will provide that, in the event William Manning sells any portion of his interests in the Manning & Napier Companies following the consummation of this offering, our other employee-owners will have the right to sell a pro rata amount of such individuals’ ownership interest in Manning & Napier Group, and if any individual does not at such time have fully vested ownership interests sufficient to allow such participation, an amount of their ownership interests will vest to the extent necessary to allow them to participate in the pro rata sale. In addition, the board of

 

 

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directors of MNA has limited the aggregate sales in any calendar year by our employees, other than William Manning, of their respective interests to a number of shares equal to 1.5% (or such higher percentage as determined by the board of directors of MNA in its sole discretion) of the number of shares that would be outstanding immediately after this offering if M&N Group Holdings exchanged 100% of its units for shares of our Class A common stock. This 1.5% limit will not apply to ownership interests entitled to vest as a result of sales by William Manning as described above or to the employment-based vesting as described above.

See “Our Structure and Reorganization—Equity Ownership Interests.”

Exchange Agreement. Prior to the consummation of this offering, we will enter into an exchange agreement with M&N Group Holdings, the direct holder of all of the Class A units of Manning & Napier Group that are not held by us, which in the aggregate is equivalent to     % of our Class A common stock on a fully diluted as-exchanged basis.

Pursuant to the terms and conditions of the exchange agreement, prior to this offering, M&N Group Holdings exchanged              Class A units of Manning & Napier Group for shares of our Class A common stock, of which              shares are being sold in this offering by M&N Group Holdings on behalf of William Manning and              shares are being sold in this offering by M&N Group Holdings on behalf of certain of our employees, including our named executive officers.

In addition, subject to certain restrictions set forth in the exchange agreement:

 

   

with respect to the              Class A units and Class B units of Manning & Napier Group, which are sometimes collectively referred to herein as units, that are attributable to the interests of William Manning in M&N Group Holdings, commencing on the first anniversary of this offering, M&N Group Holdings may exchange up to 15% of such units (equivalent to              shares of our Class A common stock on a fully diluted as-exchanged basis) per year on behalf of William Manning; provided, that with respect to the exchanges permitted as of the first anniversary of the consummation of this offering, the 15% limit will be reduced by the              units exchanged for shares of our Class A common stock sold in this offering on his behalf; and

 

   

with respect to the              Class A units of Manning & Napier Group that are attributable to the interests of the other holders of M&N Group Holdings, all of whom are our employees, including our named executive officers, other than William Manning:

 

  -  

commencing on the first anniversary of the consummation of this offering, M&N Group Holdings may exchange up to 5% of such Class A units (equivalent to              shares of our Class A common stock on a fully diluted as-exchanged basis) on behalf of such holders; and

 

  -  

commencing on the second anniversary of the consummation of this offering, M&N Group Holdings may exchange the remaining Class A units, subject to the vesting requirements and selling restrictions as set forth above.

For any units of Manning & Napier Group exchanged following the consummation of this offering, we will (i) pay an amount of cash equal to the number of units exchanged multiplied by the value of one share of our Class A common stock, or, at our election, (ii) issue shares of our Class A common stock on a one-for-one basis, subject, in each case, to customary adjustments for stock splits, stock dividends and reclassifications and other similar transactions. As we receive units of Manning & Napier Group that are exchanged, our ownership of Manning & Napier Group will increase.

 

 

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In addition, we intend to award equity-based incentives to certain employees pursuant to the Manning & Napier, Inc. 2011 Equity Compensation Plan, or the 2011 Plan, to align their interests with our stockholders. From time to time following the consummation of this offering, the holders of units of Manning & Napier Group granted pursuant to the 2011 Plan, if any, shall become parties to the exchange agreement. Following the satisfaction of any vesting conditions set forth in the applicable agreements granting such holders such units or as otherwise determined by the compensation committee, such holders may exchange such units for (i) an amount of cash equal to the number of units exchanged multiplied by the value of one share of our Class A common stock, or, at our election, (ii) shares of our Class A common stock on a one-for-one basis, subject, in each case, to customary adjustments for stock splits, stock dividends and reclassifications and other similar transactions. As we receive units of Manning & Napier Group that are exchanged, our ownership of Manning & Napier Group will increase.

See “Our Structure and Reorganization—Offering Transactions—Exchange Agreement.”

Tax Receivable Agreement. Simultaneously with this offering, we will enter into a tax receivable agreement with the holders of Class A units of Manning & Napier Group, under which we will be required to pay to the holders of such Class A units 85% of the applicable cash savings, if any, in U.S. federal, state, local and foreign income tax that we actually realize, or are deemed to realize in certain circumstances, in periods after this offering as a result of any step-up in tax basis in Manning & Napier Group’s assets resulting from (i) our purchases or exchanges of such Class A units for cash or shares of our Class A common stock (including the exchanges of Class A units in connection with the reorganization transactions) and (ii) payments under the tax receivable agreement, including any tax benefits related to imputed interest deemed to be paid by us as a result of such agreement.

There is a possibility that not all of the 85% of the applicable cash savings will be paid to the exchanging holder of Class A units at the time described above. If we determine that, all or a portion of such applicable tax savings is in doubt, we will pay to the holders of such Class A units the amount attributable to the portion of the applicable tax savings that we determine is not in doubt and pay the remainder at such time as we reasonably determine the actual tax savings or that the amount is no longer in doubt.

See “Our Structure and Reorganization—Offering Transactions—Tax Receivable Agreement.”

Our Principal Stockholder

Upon and after the consummation of this offering, William Manning will hold a majority of the combined voting power of our capital stock through his ownership of 100% of our outstanding Class B common stock. Accordingly, William Manning will have the ability to approve or disapprove certain transactions and matters, including material corporate transactions.

Corporate Information

We were incorporated on June 22, 2011 under the laws of the State of Delaware. Our principal executive office is located at 290 Woodcliff Drive, Fairport, New York 14450, and our telephone number at that office is (585) 325-6880. The website address of our operating company is www.manning-napier.com. This website and information contained on, or that can be accessed through, the website are not part of this prospectus.

 

 

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THE OFFERING

 

Class A common stock offered by us

             shares of Class A common stock.

 

Class A common stock offered by M&N Group Holdings, the selling stockholder

             shares of Class A common stock.

 

Class A common stock to be outstanding immediately after this offering

             shares of Class A common stock. If all units of Manning & Napier Group, other than those held by us, were exchanged for shares of our Class A common stock immediately after the reorganization,              shares of Class A common stock would be outstanding immediately after this offering.

 

Class B common stock to be outstanding immediately after this offering

             shares of Class B common stock.

 

Use of proceeds

We estimate that our net proceeds from this offering will be approximately $             million, based on an assumed initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this prospectus) and after deducting underwriting discounts and commissions and estimated offering expenses payable by us of $             million. We will not receive any proceeds from the sale of Class A common stock by the selling stockholder participating in this offering. The selling stockholder will receive all of the net proceeds from the sale of its shares of Class A common stock in this offering.

 

  We intend to use the net proceeds from the sale of our Class A common stock in this offering for general corporate purposes and strategic growth opportunities, including potential acquisitions. The net proceeds the selling stockholder receives from this offering will be distributed to the individuals, including William Manning, on whose behalf the selling stockholder is selling shares of our Class A common stock in this offering. See “Use of Proceeds.”

 

Risk factors

See “Risk Factors” on page 16 of this prospectus for a discussion of factors you should carefully consider before deciding to invest in our Class A common stock.

 

Voting rights

One vote per share of Class A common stock. The holder of our Class B common stock will control a majority of the vote on all matters submitted to a vote of stockholders.

 

Dividend policy

Upon the completion of this offering, we will have no material assets other than our ownership of Class A units of Manning & Napier Group. Accordingly, our ability to pay dividends will depend on distributions from Manning & Napier Group. We intend to cause Manning & Napier Group to make distributions to us with available

 

 

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cash generated from its subsidiaries’ operations in an amount sufficient to cover any dividends we may pay. If Manning & Napier Group makes such distributions, any other holders of its units will be entitled to receive equivalent distributions on a pro rata basis.

 

  The declaration and payment of all future dividends, if any, will be at the sole discretion of our board of directors. In determining the amount of any future dividends, our board of directors will take into account:

 

   

the financial results of Manning & Napier Group;

 

   

our available cash, as well as anticipated cash requirements, including any debt servicing;

 

   

our capital requirements and the capital requirements of our subsidiaries, including Manning & Napier Group;

 

   

contractual, legal, tax and regulatory restrictions on, and implications of, the payment of dividends by us to our stockholders or by Manning & Napier Group to us, including the obligation of Manning & Napier Group to make tax distributions to its unitholders, including us;

 

   

general economic and business conditions; and

 

   

any other factors that our board of directors may deem relevant.

 

  Following this offering, we intend to pay quarterly cash dividends. We expect that our first dividend will be paid in the              quarter of             and will be approximately $             per share of our Class A common stock. However, there is no assurance that sufficient cash will be available to pay any such dividends. See “Dividend Policy.”

 

Listing symbol

“MN”

The number of shares of our Class A common stock to be outstanding after the completion of this offering excludes              shares of Class A common stock reserved for issuance upon the exchange of units of Manning & Napier Group held by or that may be granted to M&N Group Holdings.

Unless otherwise indicated, all information in this prospectus assumes and reflects:

 

   

an initial public offering price of $             per share, the mid-point of the estimated initial public offering price range set forth on the cover page of this prospectus; and

 

   

no exercise by the underwriters of their right to purchase up to an aggregate of              additional shares to cover overallotments, if any.

 

 

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Summary Selected Historical and Pro Forma Combined Consolidated Financial Data

The following tables set forth summary selected historical combined consolidated financial data of the Manning & Napier Companies as of the dates and for the periods indicated. The summary selected combined consolidated statements of income data for the years ended December 31, 2008, 2009 and 2010, and the summary selected combined consolidated statements of financial condition data as of December 31, 2009 and 2010 have been derived from the Manning & Napier Companies’ audited combined consolidated financial statements included elsewhere in this prospectus. The summary selected combined consolidated statements of income data for the three months ended March 31, 2010 and 2011 and the summary selected combined consolidated statement of financial condition as of March 31, 2011 have been derived from the Manning & Napier Companies’ unaudited combined consolidated financial statements included elsewhere in this prospectus. These unaudited combined consolidated financial statements have been prepared on substantially the same basis as our audited combined consolidated financial statements and include all adjustments that we consider necessary for a fair statement of our combined consolidated statements of income and financial condition for the periods and as of the dates presented therein. Our results for the three months ended March 31, 2011 are not necessarily indicative of our results for a full fiscal year.

The following table also presents the summary selected unaudited pro forma combined consolidated financial data of Manning & Napier, to give effect to all of the transactions described under “Unaudited Pro Forma Combined Consolidated Financial Information,” including the reorganization transactions and this offering. You should read the following summary selected historical combined consolidated financial data of the Manning & Napier Companies and the unaudited pro forma financial information of Manning & Napier together with “Our Structure and Reorganization,” “Unaudited Pro Forma Combined Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical combined consolidated financial statements and related notes included elsewhere in this prospectus.

 

 

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    Manning & Napier Companies     Manning & Napier, Inc.  
    Year Ended
December 31,
    Three
Months
Ended
March 31,
    Pro Forma
Year

Ended
December 31,
    Pro Forma
Three
Months
Ended
March 31,
 
    2008     2009     2010     2010     2011     2010     2011  
                      (unaudited)     (unaudited)  
    (in millions, except per share data)  

Statements of income data:

             

Operating revenues

             

Investment management services revenues

  $ 145.6      $ 162.7      $ 255.5      $ 57.2      $ 78.0      $                   $                
                                                       

Total operating revenues

    145.6        162.7        255.5        57.2        78.0       
                                                       

Operating expenses

             

Compensation and related costs

    46.3        55.6        78.4        16.8        22.9           (1)         (1) 

Sub-transfer agent and shareholder service costs

    13.1        19.9        36.8        8.5        11.7       

Other operating costs

    20.7        22.3        25.3        5.8        6.2       
                                                       

Total operating expenses

    80.1        97.8        140.5        31.1        40.8       
                                                       

Total operating income

    65.5        64.9        115.0        26.1        37.2       
                                                       

Non-operating income (loss)

             

Interest expense on shares subject to mandatory redemption (2)

    (6.7     (10.0     (61.2     (16.2     (13.3    

Interest expense

    (0.1     —          (0.1     —          —         

Interest and dividend income

    0.6        0.1        0.1        —          —         

Net capital gains (losses) on investments

    0.1        (0.2     —          —          —         
                                                       

Total non-operating income (loss)

    (6.1     (10.1     (61.2     (16.2     (13.3    
                                                       

Income before provision for income taxes

    59.4        54.8        53.8        9.9        23.9       

Provision for income taxes

    0.4        0.4        0.7        0.2        0.2       
                                                       

Net income

  $ 59.0      $ 54.4      $ 53.1      $ 9.7      $ 23.7      $        $     
                                                       

Less: net income attributable to noncontrolling interests

             

Net income attributable to Manning & Napier, Inc.

             

Per share data:

             

Net income per share

             

Weighted average shares used in basic and diluted net income per share

             

 

  (1) In connection with the reorganization transactions, certain of the Manning & Napier Companies will modify the vesting terms related to the current ownership interests of our employees, including our named executive officers, other than William Manning. Such individuals will be entitled to 15% of their ownership interests upon the consummation of this offering, and 15% of their ownership interests over the subsequent three years. The remaining ownership interests will be subject to performance-based vesting over such three year period (subject to an initial two-year lockup period and other selling restrictions), to be determined by a vesting committee of MNA. Such new vesting terms will not result in dilution to the number of outstanding shares of our Class A common stock. As a result of such vesting requirements, we will recognize non-cash compensation charges through 2014.

 

  (2) Within interest expense, we have recognized expenses related to a mandatory redemption obligation upon the death of William Manning to pay a formula-driven amount to his estate. Our liability related to this mandatory redemption obligation was calculated each fiscal quarter, and the change in the liability was reflected as non-cash interest expense. Such mandatory redemption obligation will terminate immediately prior to the consummation of this offering and we will no longer reflect non-cash interest expense or the liability related to such obligations.

 

 

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    Manning & Napier
Companies
    Manning &
Napier, Inc.
 
    As of
December 31,
    As of
March 31,
    Pro Forma as of
March 31,
 
    2009     2010     2011     2011  
                (unaudited)     (unaudited)  
    (in millions)  

Statements of financial condition data:

       

Total assets

  $ 53.4      $ 68.3      $ 90.1      $                

Shares liability subject to mandatory redemption (1)

    109.1        170.3        183.6     

Total liabilities

    136.7        212.1        219.2     

 

  (1) Prior to this offering, we had a mandatory redemption obligation upon the death of William Manning to pay a formula-driven amount to his estate. Our liability related to this mandatory redemption obligation was calculated each fiscal quarter, and the change in the liability was reflected as non-cash interest expense. Such mandatory redemption obligation will terminate immediately prior to the consummation of this offering and we will no longer reflect non-cash interest expense or the liability related to such obligation.

 

    Manning & Napier Companies     Manning & Napier, Inc.  
    Year Ended December 31,     Three Months
Ended March 31,
    Pro Forma
Year  Ended
December 31,
    Pro Forma Three
Months Ended
March 31,
 
    2008     2009     2010     2010     2011     2010     2011  
    (in millions, except per share data)  

Selected unaudited operating data:

             

Assets under management (1)

  $ 16,231.4      $ 28,271.3      $ 38,841.7      $ 31,192.8      $ 42,564.1      $                   $                

Adjusted EBITDA (2)

    66.7        65.8        116.4        26.4        37.5       

Economic net income (2)

             

Economic net income per share

             

Net client cash flows(3)

    3,099.7        6,698.9        6,464.0        1,917.6        2,036.0       

Market appreciation (depreciation)(4)

    (5,664.0     5,341.0        4,106.4        1,003.9        1,686.4       

 

(1) Reflects the amount of money we managed for our clients as of the last day of the period.

 

(2) Our management uses non-GAAP financial measures to evaluate the profitability and efficiency of our business model. See page 15 of this prospectus for a reconciliation of these non-GAAP financial measures. Our non-GAAP financial measures may differ from similar measures used by other companies, even if similar terms are used to identify such measures.

 

(3) Reflects the amount of money our clients placed with us for management, and withdrew from our management, during the period, excluding appreciation (depreciation) due to market performance and fluctuations in exchange rates.

 

(4) Represents the appreciation (depreciation) of the value of our AUM during the period due to market performance and fluctuations in exchange rates, as well as income, such as dividends, earned on AUM.

 

 

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Our management uses Adjusted EBITDA, economic income and economic net income as financial measures to evaluate the profitability and efficiency of our business model. Adjusted EBITDA, economic income and economic net income are not presented in accordance with GAAP. Economic income excludes from income before provision for income taxes:

   

the non-cash interest expense associated with the liability for shares subject to mandatory redemption; and

   

the reorganization-related share based compensation, which results in non-cash compensation expense reported over the vesting period.

Historically, EBITDA has included adjustments for provision for income taxes, interest income and expense and depreciation and amortization. On a pro forma basis, Adjusted EBITDA also includes an adjustment for reorganization-related share based compensation. Economic net income assumes that all of our economic income would be subject to federal, state and local income tax.

 

     Manning & Napier Companies     Manning & Napier, Inc.  
     Year Ended
December 31,
    Three Months
Ended
March  31,
    Pro Forma
Year Ended
December 31,
     Pro Forma
Three  Months
Ended
March 31,
 
     2008     2009     2010     2010     2011     2010      2011  
                       (unaudited)     (unaudited)  
     (dollar amounts in million, except for per share data)  

Reconciliation of non-GAAP financial measures:

               

Net income

   $ 59.0      $ 54.4      $ 53.1      $ 9.7      $ 23.7      $                    $                

Provision for income taxes

     0.4        0.4        0.7        0.2        0.2        
                                                         

Income before provision for income taxes

     59.4        54.8        53.8        9.9        23.9        

Reorganization-related share-based compensation(1)

               

Interest expense on shares subject to mandatory redemption(2)

     6.7        10.0        61.2        16.2        13.3        
                                                         

Economic income

     66.1        64.8        115.0        26.1        37.2        

Interest expense

     0.1        —          0.1        —          —          

Interest income

     (0.6     (0.1     (0.1     —          —          

Depreciation and amortization

     1.1        1.1        1.4        0.3        0.3        
                                                         

Adjusted EBITDA

   $ 66.7      $ 65.8      $ 116.4      $ 26.4      $ 37.5        
                                                         

Economic income

     66.1        64.8        115.0        26.1        37.2        

Pro forma provision for income taxes

               

Economic net income

               

Economic net income per share

               

Operating revenue

   $ 145.6      $ 162.7      $ 255.5      $ 57.2      $ 78.0        

Net income margin percentage

     40.5     33.4     20.8     17.0     30.4     

Adjusted EBITDA margin percentage

     45.8     40.4     45.6     46.2     48.1     

Economic net income margin percentage

               

 

(1) In connection with the reorganization transactions, certain of the Manning & Napier Companies will modify the vesting terms related to the current ownership interests of our employees, including our named executive officers, other than William Manning. Such individuals will be entitled to 15% of their ownership interests upon the consummation of this offering, and 15% of their ownership interests over the subsequent three years. The remaining ownership interests will be subject to performance-based vesting over such three year period (subject to an initial two-year lockup period and other selling restrictions), to be determined by a vesting committee of MNA. Such new vesting terms will not result in dilution to the number of outstanding shares of our Class A common stock. As a result of such vesting requirements, we will recognize non-cash compensation charges through 2014.
(2) Within interest expense, we have recognized expenses related to a mandatory redemption obligation upon the death of William Manning to pay a formula-driven amount to his estate. Our liability related to this mandatory redemption obligation was calculated each fiscal quarter, and the change in the liability was reflected as non-cash interest expense. Such mandatory redemption obligation will terminate immediately prior to the consummation of this offering and we will no longer reflect non-cash interest expense or the liability related to such obligation.

 

 

 

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RISK FACTORS

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks described below, together with the other information contained in this prospectus, before making your decision to invest in shares of our Class A common stock. We cannot assure you that any of the events discussed in the risk factors below will not occur. These risks could have an adverse impact on our business, results of operations, financial condition and cash flows. If any of the following risks develops into an actual event, the trading price of our Class A common stock could decline, and you could lose all or part of your investment.

Risks Related to our Business

Our revenues are dependent on the market value and composition of our AUM, all of which are subject to fluctuation due to factors outside of our control.

We derive the majority of our revenue from investment management fees, typically calculated as a percentage of the market value of our AUM. As a result, our revenues are dependent on the value and composition of our AUM, all of which are subject to fluctuation due to many factors, including:

 

   

Declines in prices of securities in our portfolios. The prices of the securities held in the portfolios we manage may decline due to any number of factors beyond our control, including, among others, declining stock or commodities markets, a general economic downturn, political uncertainty or acts of terrorism.

 

   

Redemptions and other withdrawals. Our investors generally may withdraw their funds at any time, on very short notice and without any significant penalty. A substantial portion of our revenue is derived from investment advisory agreements that are terminable by clients upon short notice or no notice and investors in the mutual funds we advise can redeem their investments in those funds at any time without prior notice. Our growth in AUM in recent years has included new clients and portfolios that may not have the same client retention characteristics as we have experienced in the past. In addition, in a declining stock market, the pace of redemptions could accelerate.

 

   

Investment performance. If our portfolios perform poorly as compared with our competitors or applicable third-party benchmarks, or the rankings of mutual funds we manage decline, we may lose existing AUM and have difficulty attracting new assets.

 

   

Declines in fixed income markets. For fixed income investments, the value of our AUM may decline as a result of changes in interest rates, available liquidity in the markets in which a security trades, an issuer’s actual or perceived creditworthiness, or an issuer’s ability to meet its obligations.

If any of these factors cause a decline in our AUM, it would result in lower investment management fees. If our revenues decline without a commensurate reduction in our expenses, our net income will be reduced and our business will be adversely affected.

The loss of key investment professionals or members of our senior management team could have an adverse effect on our business.

We depend on the skills and expertise of qualified investment professionals and our success depends on our ability to retain key employees, including members of our senior management team. Our investment professionals possess substantial experience in investing and have been primarily responsible for the historically strong investment performance we have achieved. We particularly depend on our Senior Research Group, which is a team of ten senior analysts who manage our portfolios, and our executive management team, which is a group of five individuals led by Patrick Cunningham, our chief executive officer. The loss of any of these key individuals could limit our ability to successfully execute our business strategy and could have an adverse effect on our business.

 

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Any of our investment or management professionals may resign at any time, subject to various covenants not to compete with us. In addition, employee-owners are subject to additional covenants not to compete. We do not carry any key man insurance on any employees at this time.

Competition for qualified investment, management, marketing and client service professionals is intense and we may fail to successfully attract and retain qualified personnel in the future. Our ability to attract and retain these personnel will depend heavily on the amount and structure of compensation and opportunities for equity ownership we offer. In connection with our transition to a public company, we intend to implement a compensation structure that uses a combination of cash and equity-based incentives as appropriate. We intend for overall compensation levels to remain commensurate with amounts paid to our named executive officers and other key employees in the past. However, our compensation may not be effective to recruit and retain the personnel we need, especially if our equity-based compensation does not return significant value to employees. Any cost-reduction initiative or adjustments or reductions to compensation could negatively impact our ability to retain key personnel. In addition, changes to our management structure, corporate culture and corporate governance arrangements, including the changes associated with, and resulting from, our reorganization and this offering, could negatively impact our ability to retain key personnel.

We derive substantially all of our revenues from contracts and relationships that may be terminated upon short or no notice.

We derive substantially all of our revenues from investment advisory and sub-advisor agreements, all of which are terminable by clients upon short notice or no notice and without any significant penalty. Our investment management agreements with mutual funds, as required by law, are generally terminable by the funds’ board of directors or a vote of the majority of the funds’ outstanding voting securities on not more than 60 days’ written notice. After an initial term, each fund’s investment management agreement must be approved and renewed annually by such fund’s board, including by its independent members. In addition, all of our separate account clients and some of the pooled investment vehicles, including mutual funds, that we sub-advise have the ability to re-allocate all or any portion of the assets that we manage away from us at any time with little or no notice. These investment management agreements and mutual fund and collective investment trust client relationships may be terminated or not renewed for any number of reasons. The decrease in revenues that could result from the termination of a material client relationship or group of client relationships could have an adverse effect on our business.

We may be required to reduce the fees we charge, which could have an adverse effect on our profit margins and results of operations.

Our current fee structure may be subject to downward pressure due to a variety of factors, including a trend in recent years toward lower fees in the investment management industry. We may be required to reduce fees with respect to both the separate accounts we manage and the mutual funds we advise. In addition, we may charge lower fees to attract future new business as compared to our existing business, which may result in us having to reduce our fees with respect to our existing business accordingly. The investment management agreements pursuant to which we advise mutual funds are terminable on short notice and, after an initial term, are subject to an annual process of review and renewal by the funds’ boards. As part of that annual review process, the fund board considers, among other things, the level of compensation that the fund has been paying us for our services, and that process may result in the renegotiation of our fee structure or increase our obligations, thus increasing the cost of our performance. Any fee reductions on existing or future new business could have an adverse effect on our profit margins and results of operations.

Several of our portfolios involve investing principally in the securities of non-U.S. companies, which involve foreign currency exchange risk, and tax, political, social and economic uncertainties and risks.

As of March 31, 2011, approximately 37% of our AUM across all of our portfolios was invested in securities of non-U.S. companies. Fluctuations in foreign currency exchange rates could negatively affect the

 

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returns of our clients who are invested in these strategies. In addition, an increase in the value of the U.S. dollar relative to non-U.S. currencies is likely to result in a decrease in the U.S. dollar value of our AUM, which, in turn, could result in lower revenue since we report our financial results in U.S. dollars.

Investments in non-U.S. issuers may also be affected by tax positions taken in countries or regions in which we are invested as well as political, social and economic uncertainty, particularly as a result of the recent decline in global economic conditions. Declining tax revenues may cause governments to assert their ability to tax the local gains and/or income of foreign investors (including our clients), which could adversely affect clients’ interests in investing outside their home markets. Many financial markets are not as developed, or as efficient, as the U.S. financial markets and, as a result, those markets may have limited liquidity and higher price volatility and lack established regulations. Liquidity may also be adversely affected by political or economic events, government policies, social or civil unrest within a particular country, and our ability to dispose of an investment may also be adversely affected if we increase the size of our investments in smaller non-U.S. issuers. Non-U.S. legal and regulatory environments, including financial accounting standards and practices, may also be different, and there may be less publicly available information about such companies. These risks could adversely affect the performance of our strategies that are invested in securities of non-U.S. issuers and may be particularly acute in the emerging or less developed markets in which we invest.

We derive a substantial portion of our revenues from our Core Non-U.S. Equity portfolios.

As of March 31, 2011, approximately 31% of our AUM were invested in our Core Non-U.S. Equity portfolios. As a result, a substantial portion of our operating results depends upon the performance of our Core Non-U.S. Equity portfolios, and our ability to retain client assets in such portfolios. If a significant portion of the investors in our Core Non-U.S. Equity portfolios decide to withdraw their investments or terminate their investment management agreements for any reason, including poor investment performance or adverse market conditions, our revenues from these portfolios would decline, which could have an adverse effect on our earnings and financial condition.

The investment performance and/or the growth of our AUM may be constrained if appropriate investment opportunities are not available or if we close certain of our portfolios.

Our ability to deliver strong investment performance depends in large part on our ability to identify appropriate investment opportunities in which to invest client assets. If we are unable to identify sufficient appropriate investment opportunities for existing and new client assets on a timely basis, our investment performance could be adversely affected. The risk that sufficient appropriate investment opportunities may be unavailable is influenced by a number of factors, including general market conditions, and is likely to increase as and if our AUM increases, particularly if these increases occur very rapidly.

If we determine that sufficient investment opportunities are not available for some or all of our portfolios, or we believe that in order to continue to produce attractive returns from some or all of our portfolios we should limit the growth of those strategies, as we have done in the past, we may choose to limit the growth of the portfolio by limiting the rate at which we accept additional client assets for management under the portfolio, closing the portfolio to all or substantially all new investors or otherwise taking action to limit the flow of assets into the portfolio. If we misjudge the point at which it would be optimal to limit access to or close a portfolio, the investment performance of the portfolio could be negatively impacted. In addition, if we close access to a portfolio, we may offer a new portfolio to our clients, but we cannot guarantee that such new portfolio will attract clients or perform in a manner consistent with the closed portfolio.

The significant growth we have experienced over the past nine years has been and may continue to be difficult to sustain, and we may have difficulty managing our growth effectively.

Our AUM have increased from $6.4 billion as of December 31, 2002 to $42.6 billion as of March 31, 2011. The rapid growth in our AUM represents a significant rate of growth that has been and may continue to be

 

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difficult to sustain. In particular, as the absolute amount of our AUM increases, it will be more difficult to maintain levels of growth similar to those we have experienced in the past. The future growth of our business will depend on, among other things:

 

   

our ability to retain key investment professionals;

 

   

our ability to devote sufficient resources to maintaining existing portfolios and to selectively develop new portfolios;

 

   

our success in achieving superior investment performance from our portfolios;

 

   

our ability to maintain and extend our distribution capabilities;

 

   

our ability to deal with changing market conditions;

 

   

our ability to maintain adequate financial and business controls; and

 

   

our ability to comply with new legal and regulatory requirements arising in response to both the increased sophistication of the investment management industry and the significant market and economic events of the last few years.

Unless our growth results in an increase in our revenues that is proportionate to the increase in our costs associated with this growth, our future profitability will be adversely affected. In addition, failure to successfully diversify into new asset classes may adversely affect our growth strategy and our future profitability.

Our portfolios may not obtain attractive returns under certain market conditions or at all.

The goal of our investment process is to provide competitive absolute returns over full market cycles. Accordingly, our portfolios may not perform well during certain periods of time or under certain market conditions as compared to benchmarks or other investment managers’ strategies, which may negatively affect our ability to retain clients and attract new clients. We are likely to be most out of favor when the markets are running on price momentum and market prices become disconnected from underlying investment fundamentals, as was the case during the late 1990s as the technology market and mega cap stocks fueled the broad market upward. During and shortly following such periods of relative under performance, we are likely to see our highest levels of client turnover, even if our absolute returns are positive. Loss of client assets and the failure to attract new clients could adversely affect our revenues and growth.

The historical returns of our existing portfolios may not be indicative of their future results or of the portfolios we may develop in the future.

We have presented the historical returns of our existing portfolios under “Business—Our Competitive Strengths—Track Record of Consistent Investment Excellence through Multiple Market Cycles.” The historical returns of our portfolios and the ratings and rankings we or the mutual funds that we advise have received in the past should not be considered indicative of the future results of these portfolios or of any other portfolios that we may develop in the future. The investment performance we achieve for our clients varies over time and the variance can be wide. The ratings and rankings we or the mutual funds we advise have received are typically revised monthly. The historical performance and ratings and rankings included in this prospectus are as of March 31, 2011 and for periods then ended except where otherwise stated. The performance we have achieved and the ratings and rankings received at subsequent dates and for subsequent periods may be higher or lower and the difference could be material. Our portfolios’ returns have benefited during some periods from investment opportunities and positive economic and market conditions. In other periods, such as in 2008 and the first quarter of 2009, general economic and market conditions have negatively affected our portfolios’ returns. These negative conditions may occur again, and in the future we may not be able to identify and invest in profitable investment opportunities within our current or future portfolios.

 

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We depend on third-party distribution sources to market our portfolios and access our client base.

Our ability to attract additional assets to manage is dependent on our access to third-party intermediaries. We gain access to mutual fund investors and some retail and institutional clients through third parties, including mutual fund platforms and financial intermediaries. As of March 31, 2011, the largest relationship we have with a financial intermediary represents 5% of our total AUM and the mutual fund platform representing the largest portion of our fund assets represents an additional 5.5% of our total AUM. We compensate most of the intermediaries through which we gain access to investors in our mutual funds by paying fees, most of which are based on a percentage of assets invested in our mutual funds through that intermediary and with respect to which that intermediary provides services. These distribution sources and client bases may not continue to be accessible to us on terms we consider commercially reasonable, or at all. Limiting or the total absence of such access could have an adverse effect on our results of operations. Many of these consultants review and evaluate our products and our firm from time to time. Poor reviews or evaluations of a particular product, portfolio or us as an investment management firm may result in client withdrawals or may impair our ability to attract new assets through these intermediaries. In addition, the recent economic downturn and consolidation in the broker-dealer industry may lead to reduced distribution access and increases in fees we are required to pay to intermediaries. If such increased fees should be required, refusal to pay them could restrict our access to those client bases while paying them could adversely affect our profitability.

Our efforts to establish new portfolios or new products or services may be unsuccessful and could negatively impact our results of operations and our reputation.

As part of our growth strategy, we may seek to take advantage of opportunities to develop new portfolios consistent with our philosophy of managing portfolios to meet our clients’ objectives and using a team investment approach. The costs associated with establishing a new portfolio initially likely will exceed the revenues that the portfolio generates. If any such new portfolio performs poorly or fails to attract sufficient assets to manage, our results of operations could be negatively impacted. Further, a new portfolio’s poor performance may negatively impact our reputation and the reputation of our other portfolios within the investment community. In addition, we have developed and may seek from time to time to develop new products and services to take advantage of opportunities involving technology, insurance, participant and plan sponsor education and other products beyond investment management. The development of these products and services could involve investment of financial and management resources and may not be successful in developing client relationships, which could have an adverse effect on our business. The cost to develop these products initially will likely exceed the revenue they generate. If establishing new portfolios or offering new products or services requires hiring new personnel, to the extent we are unable to recruit and retain sufficient personnel, we may not be successful in further diversifying our portfolios, client assets and business, which could have an adverse effect on our business and future prospects.

Our failure to comply with investment guidelines set by our clients, including the boards of mutual funds, and limitations imposed by applicable law, could result in damage awards against us and a loss of our AUM, either of which could adversely affect our reputation, results of operations or financial condition.

When clients retain us to manage assets on their behalf, they generally specify certain guidelines regarding investment allocation that we are required to follow in managing their portfolios. In addition, the boards of mutual funds we manage generally establish similar guidelines regarding the investment of assets in those funds. We are also required to invest the mutual funds’ assets in accordance with limitations under the U.S. Investment Company Act of 1940, as amended, or the 1940 Act, and applicable provisions of the Internal Revenue Code of 1986, as amended, or the Code. Other clients, such as plans subject to the Employee Retirement Income Security Act of 1974, as amended, or ERISA, or non-U.S. funds, require us to invest their assets in accordance with applicable law. Our failure to comply with any of these guidelines and other limitations could result in losses to clients or investors in our products which, depending on the circumstances, could result in our obligation to make clients whole for such losses. If we believed that the circumstances did not justify a

 

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reimbursement, or clients believed the reimbursement we offered was insufficient, clients could seek to recover damages from us, withdraw assets from our products or terminate their investment management agreement with us. Any of these events could harm our reputation and adversely affect our business.

A change of control of our company could result in termination of our investment advisory agreements.

Under the 1940 Act, each of the investment advisory agreements for Securities and Exchange Commission, or SEC, registered mutual funds that our affiliate, MNA, advises automatically terminates in the event of its assignment, as defined under the 1940 Act. If such an assignment were to occur, MNA could continue to act as adviser to any such fund only if that fund’s board of directors and stockholders approved a new investment advisory agreement, except in the case of certain of the funds that we sub-advise for which only board approval would be necessary. In addition, under the U.S. Investment Advisers Act of 1940, as amended, or the Advisors Act, each of the investment advisory agreements for the separate accounts we manage may not be assigned without the consent of the client. An assignment may occur under the 1940 Act and the Advisers Act if, among other things, MNA undergoes a change of control. If such an assignment occurs, we cannot be certain that MNA will be able to obtain the necessary approvals from the boards and stockholders of the mutual funds that it advises or the necessary consents from separate account clients.

Operational risks may disrupt our business, result in losses or limit our growth.

We are heavily dependent on the capacity and reliability of the communications, information and technology systems supporting our operations, whether developed, owned and operated by us or by third parties. Operational risks such as trading or operational errors or interruption of our financial, accounting, trading, compliance and other data processing systems, whether caused by fire, natural disaster or pandemic, power or telecommunications failure, act of terrorism or war or otherwise, could result in a disruption of our business, liability to clients, regulatory intervention or reputational damage, and thus adversely affect our business. Some types of operational risks, including, for example, trading errors, may be increased in periods of increased volatility, which can magnify the cost of an error. Although we have back-up systems in place, our back-up procedures and capabilities in the event of a failure or interruption may not be adequate, and the fact that we operate our business out of multiple physical locations may make such failures and interruptions difficult to address on a timely and adequate basis. As and if our client base, number of portfolios and/or physical locations increase, developing and maintaining our operational systems and infrastructure may become increasingly challenging, which could constrain our ability to expand our business. Any upgrades or expansions to our operations or technology to accommodate increased volumes of transactions or otherwise may require significant expenditures and may increase the probability that we will suffer system degradations and failures. In addition, if we are unsuccessful in executing any such upgrades or expansions, we may instead have to hire additional employees, which could increase operational risk due to human error. We also depend on our headquarters in Fairport, New York, where a majority of our employees, administration and technology resources are located, for the continued operation of our business. Any significant disruption to our headquarters could have an adverse effect on our business.

We depend on third-party service providers for services that are important to our business, and an interruption or cessation of such services by any such service providers could have an adverse effect on our business.

We depend on a number of service providers, including custodial and clearing firms, and vendors of communications and networking products and services. We cannot assure you that any of these providers will be able to continue to provide these services in an efficient manner or that they will be able to adequately expand their services to meet our needs. An interruption or malfunction in or the cessation of an important service by any third-party and our inability to make alternative arrangements in a timely manner, or at all, could have an adverse impact on our business, financial condition and operating results.

 

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Employee misconduct could expose us to significant legal liability and reputational harm.

We operate in an industry in which integrity and the confidence of our clients are of critical importance. Accordingly, if any of our employees engage in illegal or suspicious activities or other misconduct, we could be subject to regulatory sanctions and suffer serious harm to our reputation, financial condition, client relationships and ability to attract new clients. For example, our business often requires that we deal with confidential information. If our employees were to improperly use or disclose this information, even if inadvertently, we could suffer serious harm to our reputation, financial condition and current and future business relationships. It is not always possible to deter employee misconduct, and the precautions we take to detect and prevent this activity may not always be effective. In addition, the SEC recently has increased its scrutiny of the use of non-public information obtained from corporate insiders by professional investors. Misconduct by our employees, or even unsubstantiated allegations of misconduct, could result in an adverse effect on our reputation and our business.

Improper disclosure of personal data could result in liability and harm our reputation.

We and our service providers store and process personal client information. It is possible that the security controls, training and other processes over personal data may not prevent the improper disclosure of client information. Such disclosure could harm our reputation as well and subject us to liability, resulting in increased costs or loss of revenue.

Failure to properly address conflicts of interest could harm our reputation, business and results of operations.

As we expand the scope of our business and our client base, we must continue to monitor and address any conflicts between our interests and those of our clients. The SEC and other regulators have increased their scrutiny of potential conflicts of interest, and we have implemented procedures and controls that we believe are reasonably designed to address these issues. However, appropriately dealing with conflicts of interest is complex and if we fail, or appear to fail, to deal appropriately with conflicts of interest, we could face reputational damage, litigation or regulatory proceedings or penalties, any of which could adversely affect our reputation, business and results of operations.

If our techniques for managing risk are ineffective, we may be exposed to material unanticipated losses.

In order to manage the significant risks inherent in our business, we must maintain effective policies, procedures and systems that enable us to identify, monitor and control our exposure to operational, legal and reputational risks. Our risk management methods may prove to be ineffective due to their design or implementation, or as a result of the lack of adequate, accurate or timely information or otherwise. If our risk management efforts are ineffective, we could suffer losses that could have an adverse effect on our financial condition or operating results. Additionally, we could be subject to litigation, particularly from our clients, and sanctions or fines from regulators. Our techniques for managing risks in client portfolios may not fully mitigate the risk exposure in all economic or market environments, or against all types of risk, including risks that we might fail to identify or anticipate.

The cost of insuring our business is substantial and may increase.

Our insurance costs are substantial and can fluctuate significantly from year to year. In addition, certain insurance coverage may not be available or may only be available at prohibitive costs. As we renew our insurance policies, we may be subject to additional costs resulting from rising premiums, the assumption of higher deductibles or co-insurance liability and, to the extent certain of our mutual funds purchase separate director and officer or errors and omissions liability coverage, an increased risk of insurance companies disputing responsibility for joint claims. In addition, we intend to obtain additional liability insurance for our directors and officers in connection with this offering. Higher insurance costs and incurred deductibles, as with any expense, would reduce our net income.

 

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We may elect to pursue growth in the United States and abroad through acquisitions or joint ventures, which would expose us to risks inherent in assimilating new operations, expanding into new jurisdictions, and making non-controlling minority investments in other entities.

In order to maintain and enhance our competitive position, we may review and pursue acquisition and joint venture opportunities. We cannot assure we will identify and consummate any such transactions on acceptable terms or have sufficient resources to accomplish such a strategy. In addition, any strategic transaction can involve a number of risks, including:

 

   

additional demands on our staff;

 

   

unanticipated problems regarding integration of investor account and investment security recordkeeping, operating facilities and technologies, and new employees;

 

   

adverse effects in the event acquired intangible assets or goodwill become impaired; and

 

   

the existence of liabilities or contingencies not disclosed to or otherwise known by us prior to closing such a transaction.

Risks Related to our Industry

We are subject to extensive regulation.

We are subject to extensive regulation for our investment management business and operations, including regulation by the SEC under the 1940 Act and the Advisers Act, by the U.S. Department of Labor under ERISA, and by the Financial Industry Regulatory Authority, Inc., or FINRA. The U.S. mutual funds we advise are registered with and regulated by the SEC as investment companies under the 1940 Act. The Advisers Act imposes numerous obligations on investment advisers including record keeping, advertising and operating requirements, disclosure obligations and prohibitions on fraudulent activities. The 1940 Act imposes similar obligations, as well as additional detailed operational requirements, on registered investment companies, which must be adhered to by their investment advisers. The U.S. mutual funds that we advise and our broker-dealer subsidiary are each subject to the USA PATRIOT Act of 2001, which requires them to know certain information about their clients and to monitor their transactions for suspicious financial activities, including money laundering. The U.S. Office of Foreign Assets Control, or OFAC, has issued regulations requiring that we refrain from doing business, or allow our clients to do business through us, in certain countries or with certain organizations or individuals on a list maintained by the U.S. government. In addition, Manning & Napier Benefits, LLC is a registered insurance broker with the New York State Insurance Department and, as such, is subject to various insurance and health-related rules and regulations.

Our failure to comply with applicable laws or regulations could result in fines, censure, suspensions of personnel or other sanctions, including revocation of our registration as an investment adviser. Even if a sanction imposed against us or our personnel is small in monetary amount, the adverse publicity arising from the imposition of sanctions against us by regulators could harm our reputation, result in withdrawal by our clients from our products and impede our ability to retain clients and develop new client relationships, which may reduce our revenues.

We face the risk of significant intervention by regulatory authorities, including extended investigation and surveillance activity, adoption of costly or restrictive new regulations and judicial or administrative proceedings that may result in substantial penalties. Among other things, we could be fined or be prohibited from engaging in some of our business activities. The requirements imposed by our regulators are designed to ensure the integrity of the financial markets and to protect customers and other third parties who deal with us, and are not designed to protect our stockholders. Accordingly, these regulations often serve to limit our activities, including through net capital, customer protection and market conduct requirements.

 

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The regulatory environment in which we operate is subject to continual change, and regulatory developments designed to increase oversight could adversely affect our business.

The legislative and regulatory environment in which we operate has undergone significant changes in the recent past. We believe that significant regulatory changes in our industry are likely to continue on a scale that exceeds the historical pace of regulatory change, which is likely to subject industry participants to additional, more costly and generally more punitive regulation. For example, on July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank, was enacted. Dodd-Frank introduces considerable changes to financial industry regulation, which could impact our business in significant ways. These new laws and regulations can be expected to place greater compliance and administrative burdens on us, which likely will increase our expenses without increasing our revenues. However, many of Dodd-Frank’s provisions require the adoption of regulations by various federal agencies and departments and it is difficult to predict all of the effects Dodd-Frank may have on us until final rules have been adopted.

New laws or regulations, or changes in the enforcement of existing laws or regulations, applicable to us and our clients could adversely affect our business. Our ability to function in this environment will depend on our ability to constantly monitor and promptly react to legislative and regulatory changes. There have been a number of highly publicized regulatory inquiries that have focused on the investment management industry. These inquiries already have resulted in increased scrutiny of the industry and new rules and regulations for mutual funds and investment managers. This regulatory scrutiny may limit our ability to engage in certain activities that might be beneficial to our shareholders. Further, adverse results of regulatory investigations of mutual fund, investment advisory and financial services firms could tarnish the reputation of the financial services industry generally and mutual funds and investment advisers more specifically, causing investors to avoid further fund investments or redeem their account balances. Redemptions would decrease our AUM, which would reduce our advisory revenues and net income.

In addition, recently there has been intense public and regulatory interest in 401(k) plan fees and expenses. Lawsuits have been brought against plan sponsors and service providers charging that they breached their fiduciary duties related to such fees and expenses, and the U.S. Department of Labor has imposed substantial additional fee disclosure requirements. These developments may adversely affect our business.

Further, as a result of the recent economic downturn, acts of serious fraud in the investment management industry and perceived lapses in regulatory oversight, U.S. and non-U.S. governmental and regulatory authorities may increase regulatory oversight of our business. We may be adversely affected as a result of new or revised legislation or regulations imposed by the SEC, other U.S. governmental regulatory authorities or self-regulatory organizations that supervise the financial markets. We also may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and self-regulatory organizations, as well as by U.S. courts. It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any of the proposals will become law. Compliance with any new laws or regulations could make compliance more difficult and expensive and affect the manner in which we conduct business.

The investment management industry is intensely competitive.

The investment management industry is intensely competitive, with competition based on a variety of factors, including investment performance, investment management fee rates, continuity of investment professionals and client relationships, the quality of services provided to clients, corporate positioning and business reputation, continuity of selling arrangements with intermediaries and differentiated products. A number of factors, including the following, serve to increase our competitive risks:

 

   

a number of our competitors have greater financial, technical, marketing and other resources, more comprehensive name recognition and more personnel than we do;

 

   

potential competitors have a relatively low cost of entering the investment management industry;

 

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the recent trend toward consolidation in the investment management industry, and the securities business in general, has served to increase the size and strength of a number of our competitors;

 

   

some investors may prefer to invest with an investment manager that is not publicly traded based on the perception that a publicly traded asset manager may focus on the manager’s own growth to the detriment of investment performance for clients;

 

   

some competitors may invest according to different investment styles or in alternative asset classes that the markets may perceive as more attractive than the portfolios we offer;

 

   

some competitors may operate in a different regulatory environment than we do, which may give them certain competitive advantages in the investment products and portfolio structures that they offer;

 

   

other industry participants, hedge funds and alternative asset managers may seek to recruit our investment professionals; and

 

   

some competitors charge lower fees for their investment services than we do.

If we are unable to compete effectively, our revenues could be reduced and our business could be adversely affected.

The investment management industry faces substantial litigation risks, which could adversely affect our business, financial condition or results of operations or cause significant reputational harm to us.

We depend to a large extent on our network of relationships and on our reputation to attract and retain client assets. If a client is not satisfied with our services, its dissatisfaction may be more damaging to our business than client dissatisfaction would be to other types of businesses. We make investment decisions on behalf of our clients that could result in substantial losses to them. If our clients suffer significant losses, or are otherwise dissatisfied with our services, we could be subject to the risk of legal liabilities or actions alleging negligent misconduct, breach of fiduciary duty, breach of contract, unjust enrichment and/or fraud. These risks are often difficult to assess or quantify and their existence and magnitude often remain unknown for substantial periods of time, even after an action has been commenced. We may incur significant legal expenses in defending against litigation whether or not we engaged in conduct as a result of which we might be subject to legal liability. Substantial legal liability or significant regulatory action against us could adversely affect our business, financial condition or results of operations or cause significant reputational harm to us.

Catastrophic and unpredictable events could have an adverse effect on our business.

A terrorist attack, war, power failure, cyber-attack, natural disaster or other catastrophic or unpredictable event could adversely affect our future revenues, expenses and earnings by:

 

   

decreasing investment valuations in, and returns on, the assets that we manage;

 

   

causing disruptions in national or global economies that decrease investor confidence and make investment products generally less attractive;

 

   

interrupting our normal business operations;

 

   

sustaining employee casualties, including loss of our key members of our senior management team or our investment team;

 

   

requiring substantial expenditures and expenses to repair, replace and restore normal business operations; and

 

   

reducing investor confidence.

 

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We have a disaster recovery plan to address certain contingencies, but we cannot be assured that this plan will be sufficient in responding or ameliorating the effects of all disaster scenarios. If our employees or vendors we rely upon for support in a catastrophic event are unable to respond adequately or in a timely manner, we may lose clients resulting in a decrease in AUM which may have an adverse effect on revenues and net income.

Risks Related to Our Structure and the Reorganization

Control of a majority of the combined voting power of our capital stock by William Manning, and ownership of     % of Manning & Napier Group’s ownership interests by our existing owners, including William Manning, may give rise to conflicts of interest.

Immediately after the consummation of this offering, William Manning will hold a majority of the combined voting power of our capital stock through his ownership of 100% of our outstanding Class B common stock. Accordingly, William Manning, acting alone, will have the ability to approve or disapprove substantially all transactions and other matters submitted to a vote of shareholders, including those relating to the tax receivable agreement, the exchange agreement and other material corporate transactions, such as a merger, consolidation, dissolution or sale of all or substantially all of our assets, the issuance or redemption of certain additional equity interests, and the election of directors. These voting and class approval rights may enable William Manning to consummate transactions that may not be in the best interests of holders of our Class A common stock or, conversely, prevent the consummation of transactions that may be in the best interests of holders of our Class A common stock. In addition, although he will have voting control of Manning & Napier, all of William Manning’s economic interests in us will be in the form of his indirect interests in Manning & Napier Group, the payments he may receive from Manning & Napier under the tax receivable agreement, and the proceeds he may receive as a result of M&N Group Holdings exchanging the interests attributable to him in Manning & Napier Group for cash or, at our election, shares of our Class A common stock and, in the case of exchanges for shares of our Class A common stock, from selling such Class A common stock. As a result, William Manning’s economic interests may conflict with the interests of Manning & Napier and its public stockholders.

Immediately after the reorganization transactions and the consummation of this offering, our existing owners, including William Manning, will indirectly hold, through their ownership of M&N Group Holdings, approximately     % of the ownership interests in Manning & Napier Group which, as discussed elsewhere in this prospectus, is our sole source of revenue. M&N Group Holdings is an entity controlled by William Manning, who indirectly owns a total of     % of the ownership interests in Manning & Napier Group, and all of the other owners of interests in M&N Group Holdings are current employees of ours, including our executive officers. The interests of these existing owners may conflict with our interests and the interests of the holders of our Class A common stock. Decisions of our existing owners with respect to Manning & Napier Group, including those relating to the tax receivable agreement, the exchange agreement and the structuring of future transactions, may take into consideration these existing owners’ tax or other considerations even where no similar benefit would accrue to us or the holders of our Class A common stock.

We will recognize substantial non-cash compensation expense through 2014, which is likely to cause our net income to be negative for 2011 and 2012.

In connection with the reorganization transactions, certain of the Manning & Napier Companies will amend and restate their shareholders’ agreements, pursuant to which, among other things, the vesting terms related to the current ownership interests of our employees, including our named executive officers, other than William Manning, will be amended. As a result, we will be required to recognize substantial non-cash compensation expense in each year through 2014. Further, additional ownership interests will be granted to William Manning in connection with the reorganization transactions. As a result, we will be required to recognize a one-time non-cash compensation expense equal to approximately $             million in 2011. These expenses will significantly reduce our reported GAAP net income for those years, and it is likely that our net income for 2011 and 2012 will be negative as a result. See “Our Structure and Reorganization—Agreement with Employee Minority Shareholders.”

 

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Because we are a “controlled company” within the meaning of the                      listing rules, our board of directors is not required to consist of a majority of independent directors, and you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the                     . William Manning will have a controlling influence over our board, and the interests of William Manning may conflict with the interests of our other stockholders.

Because William Manning will hold a majority of the combined voting power of our capital stock through his ownership of 100% of our outstanding Class B common stock, we will be considered a “controlled company” for the purposes of the                      listing requirements. As such, we are permitted to, and may, opt out of the corporate governance requirements that our board of directors, our compensation committee and our nominating and corporate governance committee meet the standard of independence established by                     . As a result, our board of directors and compensation committee may have more directors who do not meet the independence standards than they would if those standards were to apply. In particular, so long as we are a “controlled company,” we will be exempt from the                      rule that requires that a board be comprised of a majority of “independent directors.” Further, William Manning will have a controlling influence over our board, as William Manning will have sufficient voting power to elect the entire board, and our certificate of incorporation permits stockholders to remove directors at any time with or without cause. In addition, although we have established a nominating and corporate governance committee, we may opt out of the                     ’s requirement that such committee contain independent directors. You will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the                     , and circumstances may occur in which the interests of William Manning could conflict with the interests of our other stockholders.

Our ability to pay regular dividends to our stockholders is subject to the discretion of our board of directors and may be limited by our structure and applicable provisions of Delaware law.

Following completion of this offering, we intend to declare cash dividends on our Class A common stock as described in “Dividend Policy.” However, our board of directors may, in its sole discretion, change the amount or frequency of dividends or discontinue the payment of dividends entirely. In addition, because of our structure, we will be dependent upon the ability of our subsidiaries to generate earnings and cash flows and distribute them to us so that we may pay dividends to our stockholders. We expect to cause Manning & Napier Group to make distributions to its members, including us, in an amount sufficient for us to pay dividends. However, its ability to make such distributions will be subject to its and its subsidiaries’ operating results, cash requirements and financial condition, the applicable laws of the State of Delaware, which may limit the amount of funds available for distribution, and its compliance with covenants and financial ratios related to any indebtedness it has or may incur in the future. As a consequence of these various limitations and restrictions, we may not be able to make, or may have to reduce or eliminate, the payment of dividends on our Class A common stock. Any change in the level of our dividends or the suspension of the payment thereof could adversely affect the market price of our Class A common stock.

We will depend on distributions from Manning & Napier Group to pay taxes and expenses, including payments under the tax receivable agreement, but Manning & Napier Group’s ability to make such distributions will be subject to various limitations and restrictions.

Upon the consummation of this offering, we will use all of the net proceeds we receive from this offering to purchase Class A units in Manning & Napier Group. Accordingly, upon the consummation of this offering, we will have no material assets other than our ownership of Class A units of Manning & Napier Group and will have no independent means of generating revenue. Manning & Napier Group will be treated as a partnership for U.S. federal income tax purposes and, as such, will not be subject to U.S. federal income tax. Instead, taxable income will be allocated to holders of its units, including us. Accordingly, we will incur income taxes on our allocable share of any net taxable income of Manning & Napier Group. Under the terms of its amended and restated limited liability company operating agreement, Manning & Napier Group will be obligated to make tax distributions to holders of its units, including us. In addition to tax expenses, we also will incur

 

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expenses related to our operations, including expenses under the tax receivable agreement, which we expect will be significant. We intend, as its managing member, to cause Manning & Napier Group to make distributions in an amount sufficient to allow us to pay our taxes and operating expenses, including any payments due under the tax receivable agreement. However, Manning & Napier Group’s ability to make such distributions will be subject to various limitations and restrictions. If we do not have sufficient funds to pay tax or other liabilities to fund our operations, we may have to borrow funds, which could adversely affect our liquidity and financial condition and subject us to various restrictions imposed by any such lenders. To the extent that we are unable to make payments under the tax receivable agreement for any reason, such payments will be deferred and will accrue interest until paid.

We will be required to pay holders of units of Manning & Napier Group for certain tax benefits we may claim as a result of the tax basis step up we realize in connection with the future purchases or exchanges of those units for shares of our Class A common stock, and the amounts we may pay could be significant.

Our existing owners will hold a substantial portion of the ownership interests in Manning & Napier Group after the reorganization transactions and the consummation of this offering. Any future purchases or exchanges of their units of Manning & Napier Group for cash or, at our election, shares of our Class A common stock are expected to produce favorable tax attributes for us. When we acquire such units from existing holders, both the existing basis and the anticipated basis adjustments are likely to increase, for tax purposes, depreciation and amortization deductions allocable to us from Manning & Napier Group and therefore reduce the amount of income tax we would otherwise be required to pay in the future. This increase in tax basis may also decrease gain, or increase loss, on future dispositions of certain capital assets to the extent the increased tax basis is allocated to those capital assets.

Simultaneously with this offering, we will enter into a tax receivable agreement with the other holder of Class A units of Manning & Napier Group, pursuant to which we will be required to pay to such holders of such Class A units 85% of the applicable cash savings, if any, in U.S. federal, state, local and foreign income tax that we actually realize, or are deemed to realize in certain circumstances, in periods after this offering as a result of any step-up in tax basis in Manning & Napier Group’s assets resulting from (i) our purchases or exchanges of such Class A units for cash or, at our election, shares of our Class A common stock (including the purchases or exchanges of Class A units in connection with the reorganization transactions) and (ii) payments under the tax receivable agreement, including any tax benefits related to imputed interest deemed to be paid by us as a result of such agreement.

We expect that the payments we will be required to make under the tax receivable agreement will be substantial. Assuming no material changes in the relevant tax law, that the exchange of Class A units would result in depreciable or amortizable basis and that we earn sufficient taxable income to realize all tax benefits that are subject to the tax receivable agreement, we expect that the reduction in tax payments for us associated with the purchase or exchange of all of the Class A units held by M&N Group Holdings would aggregate approximately $             over a 15-year period based on an assumed price of $             per share of our Class A common stock (the mid-point of the estimated initial public offering price range set forth on the cover page of this prospectus). Under such scenario, we would be required to pay the holders of such Class A units 85% of such amount, or $            , over the same 15-year period. The actual amounts may materially differ from these hypothetical amounts, as potential future reductions in tax payments for us and tax receivable agreement payments by us will be calculated using the market value of our Class A common stock and the prevailing tax rates at the time of purchase or exchange and will be dependent on us generating sufficient future taxable income to realize the benefit. In general, increases in the market value of our shares or in prevailing tax rates will increase the amounts we pay under the tax receivable agreement. See “Our Structure and Reorganization—Offering Transactions—Tax Receivable Agreement.”

The actual increase in tax basis, as well as the amount and timing of any payments under the tax receivable agreement, will vary depending upon a number of factors, including:

 

   

the timing of exchanges by the holders of units of Manning & Napier Group, the number of units exchanged, or the price of our Class A common stock, as the case may be, at the time of the exchange;

 

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the amount and timing of the taxable income we generate in the future and the tax rate then applicable; and

 

   

the portion of our payments under the tax receivable agreement constituting imputed interest and whether the purchases or exchanges result in depreciable or amortizable basis.

There is a possibility that not all of the 85% of the applicable cash savings will be paid to the exchanging holder of Class A units at the time described above. If we determine that all or a portion of such applicable tax savings is in doubt, we will pay to the holders of such Class A units the amount attributable to the portion of the applicable tax savings that we determine is not in doubt and pay the remainder at such time as we determine the actual tax savings or that the amount is no longer in doubt.

Payments under the tax receivable agreement, if any, will be made pro rata among all tax receivable agreement holders entitled to payments on an annual basis to the extent we have sufficient taxable income to utilize the increased depreciation and amortization charges. The availability of sufficient taxable income to utilize the increased depreciation and amortization expense will not be determined until such time as the financial results for the year in question are known and tax estimates prepared, which typically occurs within 90 days after the end of the applicable taxable year.

In certain cases, payments under the tax receivable agreement to holders of Manning & Napier Group units may be accelerated and/or significantly exceed the actual benefits we realize in respect of the tax attributes subject to the tax receivable agreement.

The tax receivable agreement provides that upon certain mergers, asset sales, other forms of business combinations or other changes of control, or if, at any time, we elect an early termination of the tax receivable agreement, our, or our successor’s, obligations under the tax receivable agreement with respect to all Class A units of Manning & Napier Group, whether or not such units have been exchanged or acquired before or after such transaction, would be based on certain assumptions, including that we would have sufficient taxable income to fully utilize the deductions arising from the increased tax deductions and tax basis and other benefits related to entering into the tax receivable agreement. As a result, (i) we could be required to make payments under the tax receivable agreement that are greater than or less than the specified percentage of the actual benefits we realize in respect of the tax attributes subject to the tax receivable agreement and (ii) if we elect to terminate the tax receivable agreement early, we would be required to make an immediate payment equal to the present value of the anticipated future tax benefits, which payment may be made significantly in advance of the actual realization of such future benefits. In these situations, our obligations under the tax receivable agreement could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or other changes of control. There can be no assurance that we will be able to finance our obligations under the tax receivable agreement. If we were to elect to terminate the tax receivable agreement immediately after this offering, based on an assumed price of $             per share of our Class A common stock (the mid-point of the estimated initial public offering price range set forth on the cover page of this prospectus), we estimate that we would be required to pay $             in the aggregate under the tax receivable agreement. See “Our Structure and Reorganization—Offering Transactions—Tax Receivable Agreement.”

If we were deemed an investment company under the 1940 Act as a result of our ownership of Manning & Napier Group, applicable restrictions could make it impractical for us to continue our business as contemplated and could have an adverse effect on our business.

We do not believe that we are an “investment company” under the 1940 Act. Because we, as the sole managing member of Manning & Napier Group, control the management of and operate Manning & Napier Group, we believe that our interest in Manning & Napier Group is not an “investment security” as such term is used in the 1940 Act. If we were to cease participation in the management of Manning & Napier Group or not be deemed to control Manning & Napier Group, our interest in Manning & Napier Group could be deemed an

 

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“investment security” for purposes of the 1940 Act. A person may be an “investment company” if it owns investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items). Upon consummation of this offering, our sole asset will be our equity investment in Manning & Napier Group. A determination that such investment is an investment security could cause us to be deemed an investment company under the 1940 Act and to become subject to the registration and other requirements of the 1940 Act. In addition, we do not believe that we are an investment company under Section 3(b)(1) of the 1940 Act because we are not primarily engaged in a business that causes us to fall within the definition of “investment company.” The 1940 Act and the rules thereunder contain detailed prescriptions for the organization and operations of investment companies. Among other things, the 1940 Act and the rules thereunder limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities, prohibit the issuance of stock options, and impose certain governance requirements. We and Manning & Napier Group intend to conduct our operations so that we will not be deemed an investment company. However, if we nevertheless were to be deemed an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and could have an adverse effect on our business, financial condition and results of operations.

Risks Related to our Class A Common Stock and this Offering

There is no existing market for our Class A common stock, and we do not know if one will develop, to provide you with adequate liquidity.

Prior to this offering, there has not been a public market for our Class A common stock and we cannot predict the extent to which investor interest in us will lead to the development of an active trading market on the national securities exchange on which we list, or otherwise, or how liquid that market might become. If an active trading market does not develop, you may have difficulty selling your shares of Class A common stock at an attractive price, or at all. The initial public offering price for our Class A common stock will be determined by negotiations between us and the representative of the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Accordingly, you may not be able to resell shares of our Class A common stock at prices equal to or greater than the price you paid in this offering and you may suffer a loss on your investment.

The market price and trading volume of our Class A common stock may be volatile, and your investment in our Class A common stock could suffer a decline in value.

The stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations have often been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively affect the market price of our Class A common stock. If the market price of our Class A common stock after this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment.

Some of the factors that could negatively affect the price of our Class A common stock, or result in fluctuations in the price or trading volume of our Class A common stock, include:

 

   

actual or anticipated variations in our quarterly operating results;

 

   

failure to meet the market’s earnings expectations;

 

   

publication of research reports about us or the investment management industry, or the failure of securities analysts to cover our Class A common stock after this offering;

 

   

departures of any members of our senior management team or additions or departures of other key personnel;

 

   

adverse market reaction to any indebtedness we may incur or securities we may issue in the future;

 

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changes in market valuations of similar companies;

 

   

actual or anticipated poor performance in one or more of the portfolios we offer;

 

   

changes or proposed changes in laws or regulations, or differing interpretations thereof, affecting our business, or enforcement of these laws and regulations, or announcements relating to these matters;

 

   

adverse publicity about the investment management industry generally, or particular scandals, specifically;

 

   

litigation and governmental investigations;

 

   

enforcement by us or our competitors of significant acquisitions, strategic partnerships or divestitures;

 

   

actions by stockholders;

 

   

conversion or exchange of units of Manning & Napier Group for             shares of our Class A common stock or the expectation that such conversions or exchanges may occur; and

 

   

general market and economic conditions.

Future sales of our Class A common stock in the public market or perceptions that such sales may occur could lower our stock price, and any additional capital raised by us through the sale of equity or securities convertible into equity may dilute your ownership in us.

The market price of our Class A common stock could decline as a result of sales of a large number of shares of our Class A common stock available for sale after completion of this offering, or the perception that such sales could occur. These sales, or the possibility that these sales may occur, also may make it more difficult for us to raise additional capital by selling equity securities in the future, at a time and price that we deem appropriate.

After the consummation of this offering, we will have              shares of Class A common stock outstanding. Of our outstanding shares, and excluding the shares offered hereby by the selling stockholder,                     , or     %, will be restricted from immediate resale under the “lock-up” agreements between us and all of our directors, officers and stockholders and the underwriters described in the section entitled “Underwriting” herein, but may be sold into the market after those “lock-up” restrictions expire, in certain limited circumstances as set forth in the “lock-up” agreements, or if they are waived by Merrill Lynch Pierce, Fenner & Smith, Incorporated, in its discretion. The outstanding shares subject to the “lock-up” restrictions will generally become available for sale following the expiration of the lock-up agreements, which is 180 days after the date of this prospectus, subject to the volume limitations and manner-of-sale requirements under Rule 144 of the Securities Act of 1933, as amended, or the Securities Act. In addition, pursuant to the terms of an exchange agreement that we will enter into with M&N Group Holdings, the direct holder of units of Manning & Napier Group, subject to certain restrictions set forth therein and as described elsewhere in this prospectus, M&N Group Holdings will be entitled to exchange such units for an aggregate of up to             shares of our Class A common stock, subject to customary adjustments. In addition, the holders of any units of Manning & Napier Group issued subsequent to this offering will also become parties to the exchange agreement and such units, pursuant to the terms of the exchange agreement, will also be exchangeable for shares of our Class A common stock. We will also enter into a registration rights agreement pursuant to which the shares of Class A common stock issued upon such exchanges will be eligible for resale, subject to certain limitations set forth therein. See “Our Structure and Reorganization—Offering Transactions—Exchange Agreement.”

 

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We cannot predict the size of future issuances of our Class A common stock or the effect, if any, that future issuances and sales of shares of our Class A common stock may have on the market price of our Class A common stock. Sales or distributions of substantial amounts of our Class A common stock, including shares issued in connection with an acquisition, or the perception that such sales or distributions could occur, may cause the market price of our Class A common stock to decline.

The disparity in the voting rights among the classes of our capital stock may have a potential adverse effect on the price of our Class A common stock.

Each share of our Class A common stock will entitle its holder to one vote on all matters to be voted on by stockholders generally, while the holder of our Class B common stock will control a majority of the vote on all matters submitted to a vote of all stockholders. The difference in voting rights could adversely affect the value of our Class A common stock if, for example, investors view, or any potential future purchaser of our company views, the superior voting rights of the Class B common stock to have value or to delay or deter a change of control.

You will suffer immediate and substantial dilution and may experience additional dilution in the future, including as a result of the issuance of Class A units of Manning & Napier Group in connection with future acquisitions.

We expect that the initial public offering price per share of our Class A common stock will be substantially higher than the pro forma net tangible book value per share of our Class A common stock immediately after this offering, as well as after giving effect to the potential exchange of all outstanding units of Manning & Napier Group for shares of our Class A common stock. As a result, you will pay a price per share that substantially exceeds the per share book value of our assets after subtracting our liabilities. At an offering price of $             (the mid-point of the estimated initial public offering price range set forth on the cover page of this prospectus), you will incur immediate and substantial dilution in an amount of $             per share of our Class A common stock.

In addition, we may issue shares of our Class A common stock or units of Manning & Napier Group in connection with future acquisitions or grants under the 2011 Plan. If we grant exchange rights with respect to the issuance of the units of Manning & Napier Group that allow its holder to exchange such units for shares of our Class A common stock, you will incur dilution in the percentage of the issued and outstanding shares of Class A common stock that you own at such time.

We have broad discretion in the use of the net proceeds to us from this offering and may not use them in a manner in which our stockholders would consider appropriate.

We cannot specify with certainty the particular uses of the net proceeds that we will receive from this offering. Our management will have broad discretion in the application of the net proceeds, including for any of the purposes described under the heading “Use of Proceeds” included elsewhere in this prospectus. Our stockholders may not agree with the manner in which our management chooses to allocate and spend the net proceeds. The failure by our management to apply these funds effectively could have an adverse effect on our business. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

Fulfilling our public company financial reporting and other regulatory obligations will be expensive and time consuming, may strain our resources and if we fail to comply with such obligations, our business, operating results and stock price could be adversely affected.

As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and will be required to implement specific corporate governance

 

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practices and adhere to a variety of reporting requirements under the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, and the related rules and regulations of the SEC, as well as the rules of the national securities exchange on which we list.

In accordance with Section 404 of Sarbanes-Oxley, our management will be required to conduct an annual assessment of the effectiveness of our internal control over financial reporting and include a report on these internal controls in the annual reports on Form 10-K we will file with the SEC. In addition, we will be required to have our independent registered public accounting firm provide an opinion regarding the effectiveness of our internal controls. We expect that after the consummation of this offering, we will become an accelerated or large accelerated filer, and accordingly our annual reports, beginning with our annual report for the fiscal year ending December 31, 2012, must also contain a statement that our independent registered public accounting firm has issued an attestation report on the effectiveness of our internal control over financial reporting.

In order to achieve timely compliance with Section 404 of Sarbanes-Oxley, we have begun a process to evaluate our internal control over financial reporting. Our efforts to comply with Section 404 have resulted in, and are likely to continue to result in, significant costs, the commitment of time and operational resources and the diversion of management’s attention. If our management identifies one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective. If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control over financial reporting, market perception of our financial condition and the trading price of our stock may be adversely affected and customer perception of our business may suffer.

Further, the Exchange Act will require us to file annual, quarterly and current reports with respect to our business and financial condition. Compliance with these requirements will place significant additional demands on our legal, accounting and finance staff and on our accounting, financial and information systems and will increase our legal and accounting compliance costs as well as our compensation expense as we will be required to hire additional accounting, tax, finance and legal staff with the requisite technical knowledge.

As a public company we will also need to enhance our investor relations, legal and corporate communications functions. These additional efforts may strain our resources and divert management’s attention from other business concerns, which could have an adverse effect on our business, financial condition and results of operations.

Our corporate documents and Delaware law will contain provisions that could discourage, delay or prevent a change in control of our company.

Our amended and restated certificate of incorporation and amended and restated bylaws will contain provisions that may make the acquisition of our company more difficult. These provisions:

 

   

authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval, dividend, or other rights or preferences superior to the rights of the holders of our Class A common stock;

 

   

prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;

 

   

provide that the board of directors is expressly authorized to make, alter, or repeal our amended and restated bylaws;

 

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establish advance notice requirements for nominations for elections to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; and

 

   

establish a dual class structure of our voting stock, granting the holder of our Class B common stock majority voting rights.

These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of our company, even if doing so would benefit the holders of our Class A common stock.

Any issuance of preferred stock could make it difficult for another company to acquire us or could otherwise adversely affect holders of our Class A common stock, which could depress the price of our Class A common stock.

Upon completion of this offering, our board of directors will have the authority to issue preferred stock and to determine the preferences, limitations and relative rights of shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our stockholders. Our preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of our Class A common stock. The potential issuance of preferred stock may delay or prevent a change in control of us, discouraging bids for our Class A common stock at a premium over the market price, and adversely affect the market price and the voting and other rights of the holders of our Class A common stock.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our Class A common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the trading price for our Class A common stock would be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

 

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FORWARD LOOKING STATEMENTS

This prospectus contains “forward-looking statements.” Such statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “estimates,” “will,” “should,” “intends,” “plans” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and may involve significant risks and uncertainties, and that actual results may vary materially from those in the forward-looking statements as a result of various factors.

Prospective investors are cautioned not to place undue reliance on forward-looking statements. All written and oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by those cautionary statements. Any forward-looking statements which we make in this prospectus speak only as of the dates of such statements, and we undertake no obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained in this prospectus to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

Forward-looking statements include, but are not limited to, statements about:

 

   

our anticipated future results of operations and operating cash flows;

 

   

our business plans and investment policies;

 

   

our competitive position and the effects of competition on our business;

 

   

potential growth opportunities available to us;

 

   

the recruitment and retention of our employees;

 

   

our expected levels of compensation for our employees and the effect of compensation on our ability to attract and retain employees;

 

   

our potential operating performance, achievements, efficiency and cost reduction efforts;

 

   

our expected tax rate;

 

   

our intention to pay dividends;

 

   

our expectation with respect to the economy, capital markets, the market for asset management services and other industry trends;

 

   

the benefits to our business resulting from the effects of the reorganization; and

 

   

the impact of future legislation and regulation, and changes in existing legislation and regulation, on our business.

 

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OUR STRUCTURE AND REORGANIZATION

Structure Prior to the Reorganization Transactions

Prior to the reorganization transactions and this offering, we were a group of privately-held, affiliated companies comprising the Manning & Napier Companies. Five of these companies, Manning & Napier Advisors, Inc., Manning & Napier Advisory Advantage Corporation, Manning & Napier Investor Services, Inc., Manning & Napier Capital Company, LLC and Manning & Napier Alternative Opportunities, Inc., were majority owned by William Manning, our Chairman and controlling stockholder, with a minority interest held by 47 of our employees. Two of these companies, Manning & Napier Information Services, LLC and Perspective Partners LLC, through Manning & Napier Associates, LLC, were majority owned by William Manning, with a minority interest held by B. Reuben Auspitz, our Vice-Chairman.

Prior to this offering, we had a mandatory redemption obligation upon the death of William Manning to pay a formula-derived amount to his estate. Our liability related to this mandatory redemption obligation was calculated each fiscal quarter, and the change in the liability was reflected as a non-cash interest expense. Such mandatory obligation will terminate immediately prior to the consummation of this offering and we will no longer reflect non-cash interest expense or the liability related to such obligation. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Reorganization Transactions and Post-IPO Structure

In connection with this offering, we entered into the following series of transactions to reorganize our capital structure:

 

   

Each of MNA, AAC, MNBD and MNAO contributed all of its assets and liabilities to a corresponding newly formed limited liability company subsidiary in exchange for 100% of the equity interests of such new subsidiary.

 

   

MNA, AAC, MNBD, MNCC, MNAO and Manning & Napier Associates formed M&N Group Holdings and (i) each of MNA, AAC, MNBD and MNAO contributed 100% of its new subsidiary’s equity interests to M&N Group Holdings in exchange for an aggregate of                     Class A units of M&N Group Holdings, (ii) MNCC contributed 100% of its equity interests in Exeter Trust Company, its wholly owned subsidiary, to M&N Group Holdings in exchange for                     Class A units of M&N Group Holdings and (iii) Manning & Napier Associates contributed 100% of its equity interests in MNIS and PPI to M&N Group Holdings in exchange for                  Class A units of M&N Group Holdings. In addition, William Manning was granted Class B units of M&N Group Holdings in connection with such contributions.

 

   

Immediately following such contributions, M&N Group Holdings contributed 100% of its equity interests in such new subsidiaries, Exeter Trust Company, MNIS and PPI to Manning & Napier Group in exchange for             Class A units of Manning & Napier Group.

Pursuant to the terms of an exchange agreement between M&N Group Holdings and Manning & Napier, prior to this offering M&N Group Holdings exchanged                     of its Class A units of Manning & Napier Group for shares of our Class A common stock. M&N Group Holdings is selling such shares of our Class A common stock on account for William Manning and certain other persons (all of whom are our employees, including our named executive officers) in this offering. See “—Offering Transactions—Exchange Agreement” and “Principal and Selling Stockholders.”

 

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The diagram below depicts our organizational structure after the reorganization transactions and the consummation of this offering.

LOGO

 

(1) Represents Manning & Napier Advisors, Inc., Manning & Napier Advisory Advantage Corporation, Manning & Napier Investor Services, Inc. and Manning & Napier Alternative Opportunities, Inc.

 

(2) Represents (i) the newly formed limited liability companies which will have assets contributed by Manning & Napier Advisors, Inc., Manning & Napier Advisory Advantage Corporation, Manning & Napier Investor Services, Inc. and Manning & Napier Alternative Opportunities, Inc., and (ii) Perspective Partners LLC, Manning & Napier Information Services, LLC and Exeter Trust Company.

Manning & Napier, Inc.

We were incorporated in Delaware on June 22, 2011. Immediately prior to the consummation of this offering, we will amend and restate our certificate of incorporation to authorize two classes of common stock, Class A common stock and Class B common stock. Our common stock will have the terms described below and, in more detail, under “Description of Capital Stock.”

Class A Common Stock

We will issue shares of Class A common stock to the public pursuant to this offering. Each share of Class A common stock will entitle its holder to one vote and economic rights in us, including rights to dividends and distributions upon liquidation.

 

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Class B Common Stock

Immediately prior to the consummation of this offering, we will issue shares of our Class B common stock to William Manning. The holder of our Class B common stock will control a majority of the vote on all matters submitted to a vote of stockholders, but William Manning will not have any economic rights in us by virtue of his ownership of Class B common stock, whether rights to dividends, distributions or otherwise upon liquidation.

Manning & Napier Group, LLC

Upon consummation of this offering, we will conduct all of our business activities through our principal operating subsidiary, Manning & Napier Group, and its subsidiaries. Immediately prior to the consummation of this offering, the limited liability company agreement of Manning & Napier Group will be amended and restated to reclassify the limited liability company interests held by the members as Class A units and authorize the issuance of Class B units. The amended and restated limited liability company agreement will appoint Manning & Napier, Inc. as its sole managing member. In connection with the reorganization transactions, any remaining retained earnings will be distributed to our employee-owners prior to the consummation of this offering.

Holders of Class A units and Class B units will have certain voting rights as described under “—Offering Transactions—Amended and Restated Limited Liability Company Agreement of Manning & Napier Group—Voting.” Net profits and net losses and distributions of profits of Manning & Napier Group generally will be allocated and made to its members pro rata in accordance with the number of units of Manning & Napier Group they hold. Distributions to members upon a liquidation of Manning & Napier Group will be made to its members pro rata in proportion to their capital account balances, subject to the claims of creditors and the rights of all members to their proportionate shares of undistributed profits. The balance of each member’s capital account as a percentage of the aggregate capital account balances of all members will generally correspond to that member’s respective percentage interest in the profits of Manning & Napier Group.

Upon the consummation of this offering, Manning & Napier will contribute all of the net proceeds it receives from this offering to Manning & Napier Group, and Manning & Napier Group will issue to Manning & Napier a number of Class A units equal to the number of shares of Class A common stock that Manning & Napier has issued in this offering. As a result of the reorganization transactions described above, the consummation of this offering and the application of a portion of the net proceeds therefrom to purchase Class A units:

 

   

we will hold             Class A units, representing approximately     %, of Manning & Napier Group, or Class A units, representing approximately     %, if the underwriters exercise in full their option to purchase additional shares;

 

   

we will be the sole managing member of Manning & Napier Group and, as such, we will solely and exclusively manage the business, property and affairs of Manning & Napier Group;

 

   

M&N Group Holdings will hold the remaining             Class A units, representing approximately     %, of Manning & Napier Group, or             Class A units, representing approximately     %, if the underwriters exercise in full their option to purchase additional shares;

 

   

through their ownership of our Class A common stock, public stockholders will collectively have approximately     % of the voting power in Manning & Napier, or approximately     % if the underwriters exercise in full their option to purchase additional shares;

 

   

through his ownership of 100% of our outstanding Class B common stock, William Manning will hold a majority of the combined voting power in Manning & Napier; and

 

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through his indirect ownership of Class A and Class B units of M&N Group Holdings, William Manning will hold approximately     % of the interests in Manning & Napier Group.

Subject to certain restrictions set forth in the exchange agreement and described elsewhere in this prospectus, the holders of units of Manning & Napier Group will have the right to exchange such units for either cash or, at our election, shares of our Class A common stock on a one-for-one basis, subject to customary adjustments for stock splits, stock dividends and reclassifications and other similar transactions, to be determined by us in our sole discretion. As such unitholders exchange their units, we will receive a number of units, as applicable, of Manning & Napier Group either equal to the number of shares of our Class A common stock that they receive or in consideration of the cash purchase price. See “—Offering Transactions—Exchange Agreement.”

Under the terms of its amended and restated limited liability company agreement, Manning & Napier Group will be obligated to distribute to us, the holders of Class A units and the holders of Class B units cash payments for the purposes of funding tax obligations in respect of the taxable income and net capital gain that is allocated to us, the holders of Class A units and the holders of Class B units, respectively, as members of Manning & Napier Group. The amounts available to Manning & Napier Group for distributions to us for the payment of dividends will be determined after Manning & Napier Group has made distributions for purposes of funding any such tax obligations. The determination to pay dividends, if any, to the holders of our Class A common stock out of any distributions we receive from Manning & Napier Group with respect to our Class A units will be made by our board of directors. If our board of directors exercises its discretion not to authorize the payment of dividends to the holders of our Class A common stock, the holders of our Class A common stock would not receive dividend distributions relating to our pro rata share of the income earned by Manning & Napier Group, even if Manning & Napier Group makes such distributions to us. See “Dividend Policy.”

Equity Ownership Interests

In connection with the reorganization transactions, additional ownership interests in M&N Group Holdings will be granted to William Manning. In addition, certain of the Manning & Napier Companies will amend and restate their respective shareholders’ agreements, pursuant to which, among other things, the vesting terms related to the current ownership interests of our employees, including our named executive officers other than William Manning, will be amended. Such individuals will be entitled to 15% of their pre-reorganization ownership interests upon the consummation of this offering, and an additional 5% of such ownership interests will vest as of each of the first, second and third anniversaries of the consummation of this offering, provided such individuals are employed by us as of such date (employment-based vesting). The remaining ownership interests will be subject to performance-based vesting as of each of the first, second and third anniversaries of this offering (subject to an initial two-year lockup period and other selling restrictions), to be determined by a vesting committee of MNA (performance-based vesting). Such new vesting terms will not result in dilution to the number of outstanding shares of our Class A common stock.

Notwithstanding these vesting requirements, the amended and restated shareholders’ agreements will provide that, in the event William Manning sells any portion of his interests in the Manning & Napier Companies following the consummation of this offering, our other employee-owners will have the right to sell a pro rata amount of such individuals’ ownership interest in Manning & Napier Group, and if any individual does not at such time have fully vested ownership interests sufficient to allow such participation, an amount of their ownership interests will vest to the extent necessary to allow them to participate in the pro rata sale. In addition, the board of directors of MNA has limited the aggregate sales in any calendar year by our employees, other than William Manning, of their respective interests to a number of shares equal to 1.5% (or such higher percentage as determined by the board of directors of MNA in its sole discretion) of the number of shares that would be outstanding immediately after this offering if M&N Group Holdings exchanged 100% of its units for shares of our Class A common stock. This 1.5% limit will not apply to ownership interests entitled to vest as a result of sales by William Manning as described above or to the employment-based vesting as described above.

 

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As a result of such vesting requirements, we will recognize non-cash compensation charges which will be fully realized by the end of 2014. We will also recognize an additional one-time non-cash compensation charge equal to approximately $             million related to the additional ownership interests that will be granted to William Manning in connection with the reorganization transactions. Assuming (i) the sale of $             shares of our Class A common stock in this offering by the selling stockholder on behalf of certain of these individuals at an assumed initial public offering price of $             per share (the mid-point of the estimated initial public offering price range set forth on the cover page of this prospectus) and (ii) the satisfaction of all vesting conditions, including any performance-based vesting, related to the interests of the minority shareholders of the Manning & Napier Companies, we estimate these non-cash compensation charges over the next four calendar years to be as follows:

 

(in millions)       

2011

   $     

2012

   $     

2013

   $     

2014

   $                    

Offering Transactions

Exchange Agreement

Prior to the consummation of this offering, we will enter into an exchange agreement with M&N Group Holdings, the direct holder of all of the Class A units of Manning & Napier Group that are not held by us, which in the aggregate is equivalent to     % of our Class A common stock on a fully diluted as-exchanged basis.

Pursuant to the terms and conditions of the exchange agreement, prior to this offering, M&N Group Holdings exchanged              Class A units of Manning & Napier Group for shares of our Class A common stock, of which              shares are being sold in this offering by M&N Group Holdings on behalf of William Manning and              shares are being sold in this offering by M&N Group Holdings on behalf of certain of our employees, including our named executive officers.

In addition, subject to certain restrictions set forth in the exchange agreement:

 

   

with respect to the              Class A units and Class B units of Manning & Napier Group, which are sometimes collectively referred to herein as units, that are attributable to the interests of William Manning in M&N Group Holdings, commencing on the first anniversary of this offering, M&N Group Holdings may exchange up to 15% of such units (equivalent to              shares of our Class A common stock on a fully diluted as-exchanged basis) per year on behalf of William Manning; provided, that with respect to the exchanges permitted as of the first anniversary of the consummation of this offering, the 15% limit will be reduced by the              units exchanged for shares of our Class A common stock sold in this offering on his behalf; and

 

   

with respect to the              Class A units of Manning & Napier Group that are attributable to the interests of the other holders of M&N Group Holdings, all of whom are our employees, including our named executive officers other than William Manning:

 

  -  

commencing on the first anniversary of the consummation of this offering, M&N Group Holdings may exchange up to 5% of such Class A units (equivalent to              shares of our Class A common stock on a fully diluted as-exchanged basis) on behalf of such holders; and

 

  -  

commencing on the second anniversary of the consummation of this offering, M&N Group Holdings may exchange the remaining Class A units, subject to the vesting requirements and selling restrictions as set forth above.

For any units of Manning & Napier Group exchanged following the consummation of this offering, we will (i) pay an amount of cash equal to the number of units exchanged multiplied by the value of one

 

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share of our Class A common stock, or, at our election, (ii) issue shares of our Class A common stock on a one-for-one basis, subject, in each case, to customary adjustments for stock splits, stock dividends and reclassifications and other similar transactions. As we receive units of Manning & Napier Group that are exchanged, our ownership of Manning & Napier Group will increase.

In addition, we intend to award equity-based incentives to certain employees pursuant to the 2011 Plan to align their interests with our stockholders. From time to time following the consummation of this offering, the holders of units of Manning & Napier Group granted pursuant to the 2011 Plan, if any, shall become parties to the exchange agreement. Following the satisfaction of any vesting conditions set forth in the applicable agreements granting such holders such units or as otherwise determined by the compensation committee, such holders may exchange such units for (i) an amount of cash equal to the number of units exchanged multiplied by the value of one share of our Class A common stock, or, at our election, (ii) shares of our Class A common stock on a one-for-one basis, subject, in each case, to customary adjustments for stock splits, stock dividends and reclassifications and other similar transactions. As we receive units of Manning & Napier Group that are exchanged, our ownership of Manning & Napier Group will increase.

Pursuant to the exchange agreement, a holder may not exchange units if we determine that such exchange would be prohibited by law or regulation. In addition, we may impose additional restrictions on exchange that we determine to be necessary or advisable so that Manning & Napier Group is not treated as a “publicly traded partnership” for U.S. federal income tax purposes.

Registration Rights Agreement

In connection with this offering, we will enter into a registration rights agreement with the holders of units of Manning & Napier Group, pursuant to which the shares of our Class A common stock issued upon exchange of their units, if any, will be eligible for resale, subject to the resale timing and manner limitations described below.

Pursuant to the registration rights agreement, we will commit to file, following the first anniversary of the consummation of this offering, a shelf registration statement registering shares of our Class A common stock that may be issued upon the exchange of units of Manning & Napier Group pursuant to the exchange agreement. We also will commit to use our reasonable best efforts to cause the SEC to declare the shelf registration statement effective as soon as reasonably practicable thereafter and to keep such shelf registration statement continuously effective until the date on which all securities included in such shelf registration statement have been sold in accordance with the plan and method of distribution set forth therein.

We have agreed in the registration rights agreement to indemnify the participating holders, solely in their capacity as selling stockholders, against any losses or damages resulting from any untrue statement, or omission, of any material fact contained in any registration statement, prospectus or any amendments or supplements thereto pursuant to which they may sell the shares of our Class A common stock that they receive upon exchange of their units, except to the extent such liability arose from the selling stockholder’s misstatement or omission of a material fact, and the participating holders have agreed to indemnify us against all losses caused by their misstatements or omissions of a material fact relating to them.

We will pay all expenses incident to our performance of, or compliance with, any registration or marketing of securities pursuant to the registration rights agreement. The selling stockholders will pay their respective portions of all underwriting discounts, commissions and transfer taxes relating to the sale of their shares of our Class A common stock pursuant to the registration rights agreement.

 

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Amended and Restated Limited Liability Company Agreement of Manning & Napier Group, LLC

As a result of the reorganization, we will conduct all of our business activities through our principal operating subsidiary, Manning & Napier Group, and its subsidiaries. The operations of Manning & Napier Group, and the rights and obligations of its members, including us, will be set forth in an amended and restated limited liability company agreement of Manning & Napier Group, a form of which will be filed as an exhibit to the registration statement of which this prospectus forms a part. The following is a description of the material terms of this agreement.

Governance. We will serve as sole managing member of Manning & Napier Group. As such, we will control its business and affairs and will be responsible for the management of its business.

Economic Rights of Members. Manning & Napier Group will have Class A units and Class B units. Net profits and net losses and distributions of profits of Manning & Napier Group generally will be allocated and made to its members pro rata in accordance with the number of Class A units and Class B units of Manning & Napier Group they hold.

Voting. Each Class A unit and Class B unit will entitle its holder to one vote for each such Class A unit and Class B unit, respectively.

Transfer Restriction. Except to certain permitted transferees, including the members of M&N Group Holdings, and in connection with the exchange agreement, no member of Manning & Napier Group may transfer all or any portion of its units, whether vested or unvested, without the prior written consent of the managing member, which may be withheld in our sole discretion.

Indemnification and Exculpation. Manning & Napier Group will indemnify us, as its sole managing member, and our directors and officers against any losses, claims, damages, liabilities, expenses (including legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, that are imposed on, incurred by or asserted against us or our directors and officers as a result of or arising out of the amended and restated limited liability company agreement, Manning & Napier Group, its assets, business or affairs or our activities, in our capacity as the managing member, or the activities of our directors and officers serving in their capacity as such, or otherwise on behalf of Manning & Napier Group to the extent within the scope of the authority reasonably believed to be conferred on us or such directors and officers. Notwithstanding the foregoing, neither we nor our directors or officers will be indemnified for any loss or other amount to the extent such loss or other amount arises out of (i) our failure, or the failure of our directors or officers, as applicable, to act in good faith and in a manner believed to be in the best interests of Manning & Napier Group or (ii) our, or our directors’ or officers’, as applicable, gross negligence or willful misconduct.

Manning & Napier Group will also advance the expenses (including reasonable legal fees and expenses) incurred by the indemnified parties in advance of a final disposition of such matters so long as the indemnified party undertakes to repay the expenses if it is determined that the party is not entitled to indemnification.

We, as the managing member, and our directors and officers will not be liable to Manning & Napier Group for any losses or other amounts imposed on, incurred by or asserted against Manning & Napier Group or any other indemnified party as a result of or arising out of any of our activities, in our capacity as the managing member, or the activities of our directors and officers serving in their capacity as such, to the extent within the scope of the authority reasonably believed to be conferred on us or such directors and officers, except to the extent such losses or other amounts arise out of (i) our failure, or the failure of our directors or officers, as applicable, to act in good faith and in a manner believed to be in the best interests of Manning & Napier Group or (ii) our, or our directors’ or officers’, as applicable, gross negligence or willful misconduct.

 

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Amendments. The amended and restated limited liability company agreement may be amended with the written consent of the managing member and M&N Group Holdings; provided, the managing member may, without the consent of any of the other members, amend the amended and restated limited liability company agreement to (i) satisfy any requirements, conditions, guidelines or opinions imposed by any governmental agency or by statute if the managing member deems such amendment to be in the best interests of Manning & Napier Group, (ii) ensure that Manning & Napier Group will not be treated as a “publicly traded partnership” under the Code or comply with any requirements of the Code, the regulations promulgated thereunder and the rulings of the IRS with respect to the tax treatment of Manning & Napier Group as a partnership for federal income tax purposes, or (iii) change the name of Manning & Napier Group. Notwithstanding the foregoing, no amendment that would affect any member in a manner that is disproportionate to the manner in which other members holding the same series or class of units is affected may be made without the consent of the members holding a majority of the class or series of units that would be disproportionately affected by such amendment.

Tax Receivable Agreement

Pursuant to the exchange agreement described above, following the consummation of this offering we may be required to acquire Class A units of Manning & Napier Group from their holders in exchange for cash or, at our option, shares of our Class A common stock. Manning & Napier Group intends to have an election under Section 754 of the Code in effect for taxable years in which purchases or exchanges of the Class A units of Manning & Napier Group will occur. Pursuant to the Section 754 election, each future purchase or exchange of such Class A units is expected to result in the purchaser of such units receiving an increase in the tax basis of tangible and intangible assets of Manning & Napier Group. When we acquire Class A units of Manning & Napier Group from existing members, we expect that the anticipated basis adjustments will increase, for tax purposes, the tax basis in the Manning & Napier Group’s assets attributable to the Class A units we acquire. The higher tax basis will increase depreciation and amortization deductions allocable to us from Manning & Napier Group and therefore reduce the amount of income tax we would otherwise be required to pay in the future. This increase in tax basis may also decrease gain, or increase loss, on future dispositions of certain capital assets to the extent increased tax basis is allocated to those capital assets.

Simultaneously with this offering, we will enter into a tax receivable agreement with the other holder of Class A units of Manning & Napier Group, pursuant to which we will be required to pay to such holders of such Class A units 85% of the applicable cash savings, if any, in U.S. federal, state, local and foreign income tax that we actually realize, or are deemed to realize in certain circumstances, in periods after this offering as a result of any step-up in tax basis in Manning & Napier Group’s assets resulting from (i) our purchases or exchanges of such Class A units for cash or, at our election, shares of our Class A common stock (including the purchases or exchanges in connection with the reorganization transactions) and (ii) payments under the tax receivable agreement, including any tax benefits related to imputed interest deemed to be paid by us as a result of such agreement.

There is a possibility that not all of the 85% of the applicable cash savings will be paid to the exchanging holder of Class A units at the time described above. If we determine that all or a portion of such applicable tax savings is in doubt, we will pay to the holders of such Class A units the amount attributable to the portion of the applicable tax savings that we determine is not in doubt and pay the remainder at such time as we reasonably determine the actual tax savings or that the amount is no longer in doubt.

For purposes of the tax receivable agreement, cash savings in tax are calculated by comparing our actual income tax liability to the amount we would have been required to pay had we not been able to utilize any of the tax benefits subject to the tax receivable agreement, unless certain assumptions apply, as discussed herein. The term of the tax receivable agreement will continue until 60 years after the last exchange of Class A units that are the subject of the tax receivable agreement all such tax benefits have been utilized or expired, unless we exercise our rights to terminate the tax receivable agreement or payments under the agreement are accelerated in connection with a change of control (as described below). The actual increase in tax basis, as well as the amount and timing of any payments under the agreement, will vary depending upon a number of factors, including the

 

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timing of exchanges by the holders of Class A units of Manning & Napier Group, the number of units exchanged the price of our Class A common stock at the time of the exchange, the extent to which such exchanges are taxable, the amount and timing of the taxable income we generate in the future and the tax rate then applicable and the portion of our payments under the tax receivable agreement constituting imputed interest or depreciable or amortizable basis.

We expect that the payments we will be required to make under the tax receivable agreement will be substantial. Assuming no material changes in the relevant tax law, that our exchange of Class A units would result in depreciable or amortizable basis and that we earn sufficient taxable income to realize all tax benefits that are subject to the tax receivable agreement, we expect that the reduction in tax payments for us associated with the purchase or exchange of all of the Class A units held by M&N Group Holdings would aggregate approximately $             over a 15-year period based on an assumed price of $             per share of our Class A common stock (the mid-point of the estimated initial public offering price range set forth on the cover page of this prospectus). Under such scenario, we would be required to pay the holders of such Class A units 85% of such amount, or $            , over the same 15-year period. The actual amounts may materially differ from these hypothetical amounts, as potential future reductions in tax payments for us and tax receivable agreement payments by us will be calculated using the market value of our Class A common stock and the prevailing tax rates at the time of purchase or exchange and will be dependent on us generating sufficient future taxable income to realize the benefit. In general, increases in the market value of our shares or in prevailing tax rates will increase the amounts we pay under the tax receivable agreement.

In addition, we will not be reimbursed for any payments previously made if such basis increases or other benefits are subsequently disallowed, except that excess payments made to any such holder will be netted against payments otherwise to be made, if any, to such holder after our determination of such excess. We might not determine that we have paid such excess for a number of years following such payment. As a result, in such circumstances, we could make payments under the tax receivable agreement that are greater than our actual cash tax savings.

The tax receivable agreement provides that upon certain mergers, asset sales, other forms of business combinations or other changes of control, or if, at any time, we elect an early termination of the tax receivable agreement, our, or our successor’s, obligations under the tax receivable agreement with respect to all Class A units of Manning & Napier Group, whether or not such units have been exchanged or acquired before or after such transaction, would be based on certain assumptions, including that we would have sufficient taxable income to fully utilize the deductions arising from the increased tax deductions and tax basis and other benefits related to entering into the tax receivable agreement. As a result, (i) we could be required to make payments under the tax receivable agreement that are greater than or less than the specified percentage of the actual benefits we realize in respect of the tax attributes subject to the tax receivable agreement and (ii) if we elect to terminate the tax receivable agreement early, we would be required to make an immediate payment equal to the present value of the anticipated future tax benefits attributable to depreciable and amortizable assets, which payment may be made significantly in advance of the actual realization of such future benefits, and additional payments upon the sale of non-amortizable assets. There is a possibility that not all of the early termination payment will be made to the exchanging holder of Class A units at the time described above. If we determine that all or a portion of such early termination payment is in doubt, we will pay to the holders of such Class A units the amount attributable to the portion of the early termination payment that we determine is not in doubt and pay the remainder at such time as we determine the actual tax savings or that the amount is no longer in doubt. In these situations, our obligations under the tax receivable agreement could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or other changes of control. There can be no assurance that we will be able to finance our obligations under the tax receivable agreement. If we were to elect to terminate the tax receivable agreement immediately after this offering, based on an assumed price of $ per share of our Class A common stock (the mid-point of the estimated initial public offering price range set forth on the cover page of this prospectus), we estimate that we would be required to pay $             in the aggregate under the tax receivable agreement.

 

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Payments under the tax receivable agreement, if any, will be made pro rata among all tax receivable agreement holders entitled to payments on an annual basis to the extent we have sufficient taxable income to utilize the increased depreciation and amortization charges. The availability of sufficient taxable income to utilize the increased depreciation and amortization expense will not be determined until such time as the financial results for the year in question are known and tax estimates prepared, which typically occurs within 90 days after the end of the applicable taxable year. We expect to make payments under the tax receivable agreement, to the extent they are required, within 145 days after the end of the taxable year in which the increased depreciation and amortization expense was utilized. Interest on such payments will begin to accrue at a rate of     % from the due date (without extensions) of such tax return for each such applicable taxable year of Manning & Napier.

The impact the tax receivable agreement will have on our consolidated financial statements will be the establishment of a liability, which will be increased upon the exchanges of Class A units of Manning & Napier Group for shares of our Class A common stock representing 85% of the estimated future tax benefits, if any, relating to the increase in tax basis associated with the Class A units we receive as a result of exchanges by unitholders of Manning & Napier Group. The amount and timing of any payments will vary based on a number of factors, including the timing of future exchanges, the number of units exchanged, the price of our Class A common stock at the time of any exchange, the extent to which such exchanges are taxable, the availability of amortization or depreciation deductions with respect to the intangible assets and the amount and timing of our income; depending upon the outcome of these factors, we may be obligated to make substantial payments pursuant to the tax receivable agreement. In light of the numerous factors affecting our obligation to make such payments, however, the timing and amount of any such actual payments are not certain at this time.

Decisions made by our existing owners in the course of running our business, such as with respect to mergers, asset sales, other forms of business combinations or other changes in control, may influence the timing and amount of payments that are received by an exchanging or selling existing owner under the tax receivable agreement. For example, the earlier disposition of assets following an exchange or acquisition transaction will generally accelerate payments under the tax receivable agreement and increase the present value of such payments, and the disposition of assets before an exchange or acquisition transaction will increase an existing owner’s tax liability without giving rise to any rights of an existing owner to receive payments under the tax receivable agreement.

Because of our structure, our ability to make payments under the tax receivable agreement is dependent on the ability of Manning & Napier Group to make distributions to us. The ability of Manning & Napier Group to make such distributions will be subject to, among other things, the applicable provisions of Delaware law that may limit the amount of funds available for distribution to its members, of which we are one. To the extent that we are unable to make payments under the tax receivable agreement for any reason, such payments will be deferred and will accrue interest until paid.

 

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USE OF PROCEEDS

We estimate that we will receive approximately $             million in net proceeds from this offering, or $             million if the underwriters’ overallotment option is exercised in full, based on an assumed initial public offering price of $             per share (the mid-point of the price range set forth on the cover page of this prospectus) and after deducting the underwriting discounts and commissions and estimated expenses payable by us.

Manning & Napier will use the net proceeds received from this offering to purchase Class A units of Manning & Napier Group. Manning & Napier Group expects to use such proceeds for general corporate purposes and strategic growth opportunities, including potential acquisitions. However, as of the date of this prospectus, we have no agreement relating to any material acquisition or investment.

We will not receive any proceeds from the sale of             shares of Class A common stock offered by the selling stockholder participating in this offering. The net proceeds the selling stockholder receives from this offering will be distributed to the individuals, including William Manning, on whose behalf the selling stockholder is selling shares of our Class A common stock in this offering.

We have not yet determined the amount of net proceeds to be used for any specific purpose. Accordingly, management will have significant flexibility in applying the net proceeds of this offering. Pending the application of the net proceeds from this offering, the net proceeds may be invested in short-term securities or other investment products.

 

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DIVIDEND POLICY

Following this offering, we intend to pay quarterly cash dividends. We expect that our first dividend will be paid in the             quarter of             and will be $             per share of our Class A common stock. We intend to fund our initial dividend, as well as any future dividends, from our portion of distributions made by Manning & Napier Group, from its available cash generated from operations. William Manning, as the holder of our Class B common stock, will not be entitled to any cash dividends in his capacity as a Class B stockholder, but will, in his capacity as an indirect holder of Class A units of Manning & Napier Group, generally participate on a pro rata basis in distributions by Manning & Napier Group.

The declaration and payment of all future dividends, if any, will be at the sole discretion of our board of directors. In determining the amount of any future dividends, our board of directors will take into account:

 

   

the financial results of Manning & Napier Group;

 

   

our available cash, as well as anticipated cash requirements, including any debt servicing;

 

   

our capital requirements and the capital requirements of our subsidiaries, including Manning & Napier Group;

 

   

contractual, legal, tax and regulatory restrictions on, and implications of, the payment of dividends by us to our stockholders or by Manning & Napier Group to us, including the obligation of Manning & Napier Group to make tax distributions to its unitholders, including us;

 

   

general economic and business conditions; and

 

   

any other factors that our board of directors may deem relevant.

Upon consummation of this offering, we will have no material assets other than our ownership of Class A units of Manning & Napier Group and, accordingly, will depend on distributions from Manning & Napier Group to fund any dividends we may pay. As managing member of Manning & Napier Group, we will determine the timing and amount of any distributions to be paid to its members. We intend to cause Manning & Napier Group to distribute cash to its members, including us, in an amount sufficient to cover dividends, if any, declared by us. If we do cause Manning & Napier Group to make such distributions, holders of units of Manning & Napier Group will be entitled to receive equivalent distributions on a pro rata basis.

Our dividend policy has certain risks and limitations, particularly with respect to liquidity. Although we expect to pay dividends according to our dividend policy, we may not pay dividends according to our policy, or at all, if, among other things, Manning & Napier Group is unable to make distributions to us as a result of its operating results, cash requirements and financial condition, its making certain mandatory distributions to its members relating to their income tax liability, the applicable laws of the State of Delaware, which may limit the amount of funds available for distribution, and its compliance with covenants and financial ratios related to any indebtedness it may incur in the future. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

We are taxable as a corporation for U.S. federal income tax purposes and therefore holders of our Class A common stock will not be taxed directly on our earnings. Distributions of cash or other property that we pay to our stockholders will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax rules. If the amount of a distribution by us to our stockholders exceeds our current and accumulated earnings and profits, such excess will be treated first as a tax-free return of capital to the extent of a holder’s adjusted tax basis in the Class A common stock and thereafter as capital gain.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and our total capitalization as of March 31, 2011 on an actual basis and on an as adjusted basis to give effect to the sale of             shares of our Class A common stock in this offering at an assumed initial public offering price of $             per share, the mid-point of the estimated initial public offering price range set forth on the cover page of this prospectus, the application of the net proceeds as described in “Use of Proceeds,” and the reorganization transactions.

This table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto appearing elsewhere in this prospectus.

 

     As of March 31, 2011  
     Actual     As adjusted (1)  
     (unaudited)  
     (in thousands)  

Cash and cash equivalents

   $ 47,759      $                
                

Liabilities

    

Liabilities other than shares liability subject to mandatory redemption

     35,555     

Shares liability subject to mandatory redemption

     183,607     
                

Total liabilities

     219,162     

Shareholders’ deficit and partners’ capital

    

Class A common stock, par value $0.01 per share (             shares authorized, and              shares issued and outstanding, as adjusted)

     —       

Class B common stock, par value $0.01 per share (             shares authorized, and              shares issued and outstanding, as adjusted)

     —       

Common stock, par value $0.01 per share (10,000,000 shares authorized, 2,565,322 shares issued and outstanding and 5,224,050 shares issued and outstanding subject to mandatory redemption) (2)

     103     

Additional paid-in capital

     1,970     

Retained earnings (deficit)

     (133,285  

Accumulated other comprehensive income

     554     

Partners’ equity

     1,583     
                

Total shareholders’ deficit and partners’ capital attributable to the Manning & Napier Companies

     (129,075  
                

Non-controlling interest

     38     
                

Total shareholders’ deficit and partners’ capital

     (129,037  
                

Total liabilities and shareholders’ deficit and partners’ capital

   $ 90,125      $     
                

 

(1) A $1.00 increase/(decrease) in the assumed initial public offering price of $             per share, which is the mid-point of the price range listed on the cover page of this prospectus, would increase/(decrease) the as adjusted amount of each of cash and cash equivalents, additional paid-in capital and total capitalization by approximately $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters’ option to purchase an additional              shares of Class A common stock in this offering is exercised in full, the as adjusted amount of each of additional paid-in capital and total capitalization would increase by approximately $             million, and we would have              shares of our Class A common stock issued and outstanding.

 

(2) Number of shares authorized, issued and outstanding represents the capitalization of each of MNA, AAC, MNAO and MNBD, singly and not in the aggregate, both prior to and subsequent to the reorganization transactions and this offering. The “Actual” number represents the aggregate capital of MNA, AAC, MNAO and MNBD. After giving effect to the reorganization transactions and this offering, we will not own any of the issued and outstanding common stock of these entities, and the only assets of these entities will be     % of the Class A units of M&N Group Holdings. Prior to this offering, we had a mandatory redemption obligation upon the death of William Manning to pay a formula-driven amount to his estate. Pursuant to such obligation, 5,224,050 shares of common stock of each of the entities were subject to mandatory redemption. Such mandatory redemption obligation will terminate immediately prior to the consummation of this offering. See “Our Structure and Reorganization.”

The number of shares of our Class A common stock to be outstanding after the completion of this offering excludes             shares of Class A common stock reserved for issuance upon the exchange of units of Manning & Napier Group held by or that may be granted to M&N Group Holdings.

 

 

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DILUTION

Dilution is the amount by which the offering price paid by the purchasers of our Class A common stock to be sold in this offering will exceed the net tangible book value per share of our Class A common stock immediately after this offering. Our pro forma net tangible book value as of March 31, 2011 was $             million, or $             per share of Class A common stock. “Net tangible book value” per share represents the amount of our total tangible assets reduced by the amount of our total liabilities, divided by the number of shares of Class A common stock outstanding as of March 31, 2011. Our as adjusted net tangible book value as of March 31, 2011, assuming no changes in our net tangible book value other than the sale of             shares of Class A common stock in this offering at an assumed initial offering price of $             per share (the mid-point of the price range set forth on the cover of this prospectus) and application of estimated net proceeds of $             from such sale after deducting the underwriting discounts and commissions and estimated offering expenses, would have been approximately $            , or $             per share. This represents an immediate increase in pro forma net tangible book value of $ per share to existing stockholders and an immediate dilution of $             per share to new investors. Immediate dilution is the difference between the purchase price per share paid by a new investor and the net tangible book value of each share immediately after this offering.

The following table illustrates this per share dilution:

 

Assumed initial public offering price per share

      $                

Net tangible book value per share before this offering

   $                   

Increase in net tangible book value per share attributable to cash payments made by new investors

     
           

Pro forma net tangible book value per share after this offering

     
           

Dilution of net tangible book value per share to new investors

      $     
           

A $1.00 increase (decrease) in the assumed initial public offering price of $             per share (the mid-point of the price range set forth on the cover of this prospectus) would increase (decrease) our net tangible book value (deficit) by $             million, the net tangible book value (deficit) per share after this offering by $             per share and the decrease in net tangible book value (deficit) to new investors in this offering by $             per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses.

The following table summarizes the number of shares purchased from us and the total consideration and average price per share paid to us, by existing holders of Class A common stock, and the total number of shares purchased from the Company, the total consideration paid to the Company and the price per share paid by new investors purchasing shares in this offering:

 

     Shares purchased     Total consideration     Average price
per share
 
     Number      Percent     Amount      Percent    

Existing holders of Class A common stock

               $                             $                

Investors purchasing Class A common stock in this offering

            
                                    

Total

        100   $           100   $     

If the underwriters’ overallotment is purchased in full:

 

   

the percentage of our shares of Class A common stock held by our existing holders of Class A common stock will decrease to             shares, or approximately     % of the total number of shares of Class A common stock outstanding after this offering; and

 

   

the number of our shares of Class A common stock held by investors purchasing Class A common stock in this offering will increase             to shares, or approximately     % of the total number of shares of Class A common stock outstanding after this offering.

 

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UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION

The unaudited pro forma combined consolidated statement of income for the year ended December 31, 2010 and for the three months ended March 31, 2011 present our combined consolidated results of operations giving pro forma effect to the items listed below as if such transactions occurred on January 1, 2010. The unaudited pro forma combined consolidated statement of financial condition as of March 31, 2011 presents our combined consolidated financial condition giving pro forma effect to the items listed below as if such transactions occurred on March 31, 2011. The pro forma adjustments are based on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of these transactions on the historical financial information of the Manning & Napier Companies.

The unaudited pro forma combined consolidated financial information should be read together with “Our Structure and Reorganization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical combined consolidated financial statements and related notes included elsewhere in this prospectus.

The pro forma adjustments principally give effect to:

 

   

the reorganization transactions described in “Our Structure and Reorganization;”

 

   

the issuance of             shares of Class B common stock to William Manning, our Chairman and controlling stockholder;

 

   

the elimination of our mandatory redemption obligation upon the death of William Manning to pay a formula-driven amount to his estate. Pursuant to such mandatory redemption obligation, 5,224,050 shares of common stock of each of MNA, AAC, MNAO and MNBD were subject to mandatory redemption. Such obligation will terminate immediately prior to the consummation of this offering;

 

   

a one-time non-cash compensation charge in 2011, equal to approximately $             million, related to the additional ownership interests in M&N Group Holdings granted to William Manning in connection with the reorganization transactions;

 

   

non-cash compensation charges through 2014, resulting from amendments to the vesting terms related to the current ownership interests of our employees, including our named executive officers, other than William Manning, in certain of the Manning & Napier Companies. These new vesting terms will not result in any dilution to the outstanding shares of our Class A common stock;

 

   

the sale of             shares of our Class A common stock by us in this offering at an assumed offering price of $             per share (the mid-point of the price range set forth on the cover of this prospectus);

 

   

the purchase by us of units of Manning & Napier Group pursuant to the exchange agreement and the related effects of the tax receivable agreement. See “Our Structure and Reorganization—Offering Transactions—Exchange Agreement” and “Our Structure and Reorganization—Offering Transactions—Tax Receivable Agreement;” and

 

   

in the case of the unaudited pro forma combined consolidated statements of income, a provision for corporate income taxes on the income attributable to us at an effective rate of     %, reflecting assumed federal, state and local income taxes.

We have not made any pro forma adjustments to our compensation and related costs, or any of our other expense items, relating to reporting, compliance or investor relations costs, or other incremental costs that we may incur as a public company, including costs relating to compliance with Section 404 of the Sarbanes-Oxley Act.

 

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The unaudited pro forma combined consolidated financial information is included for informational purposes only and does not purport to reflect the results of operations or financial condition of the Manning & Napier Companies that would have occurred had we operated as a public company during the periods presented. The unaudited pro forma combined consolidated financial information should not be relied upon as being indicative of our results of operations or financial condition had the reorganization transactions described under “Our Structure and Reorganization” and the use of the estimated net proceeds from this offering as described under “Use of Proceeds” occurred on the dates assumed. The unaudited pro forma combined consolidated financial information also does not project our results of operations or financial condition for any future period or date.

 

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Unaudited Pro Forma Combined Consolidated

Statement of Income

For the Year Ended December 31, 2010

 

     Manning &
Napier
Companies
Actual
    Pro Forma
Adjustments
           Manning &
Napier,  Inc.

Pro Forma
 
     (in thousands, except share and per share amounts)  

Revenues

         

Investment management services revenue

   $ 255,472          

Expenses

         

Compensation and related costs

     78,416          (1   

Sub-transfer agent and shareholder service costs

     36,830          

Other operating costs

     25,284          
                           

Total operating expenses

     140,530          
                           

Operating income

     114,942          

Non-operating income (loss)

         

Interest expense on shares subject to mandatory redemption

     (61,243       (2   

Interest expense

     (16       

Interest and dividend income

     126          

Net capital gains (losses) on investments

     1          
                           

Total non-operating loss

     (61,132       

Income before provision for income taxes

     53,810          

Provision for income taxes

     712          (3   
                           

Net income attributable to the controlling and the noncontrolling interests

   $ 53,098          
               

Less: Net income attributable to the noncontrolling interests

         (4   
               

Net income (loss) attributable to Manning & Napier, Inc.

         
               

Net income available to Class A common stock per basic and diluted share

         
               

Weighted average basic and diluted shares of Class A common stock outstanding

         (5   
               

The accompanying notes are an integral part of this unaudited pro forma combined consolidated financial statement.

 

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Unaudited Pro Forma Combined Consolidated

Statement of Income

For the Three Months Ended March 31, 2011

 

     Manning &
Napier
Companies
Actual
    Pro Forma
Adjustments
           Manning &
Napier, Inc.

Pro Forma
 
     (in thousands, except share and per share amounts)  

Revenues

         

Investment management services revenue

   $ 78,040          

Expenses

         

Compensation and related costs

     22,894          (1   

Sub-transfer agent and shareholder service costs

     11,695          

Other operating costs

     6,225          
                           

Total operating expenses

     40,814          
                           

Operating income

     37,226          

Non-operating income (loss)

         

Interest expense on shares subject to mandatory redemption

     (13,288       (2   

Interest expense

     (9       

Interest and dividend income

     14          

Net capital gains (losses) on investments

     3          
                           

Total non-operating loss

     (13,280       
                           

Income before provision for income taxes

     23,946          

Provision for income taxes

     286          (3   
                           

Net income attributable to the controlling and the noncontrolling interests

   $ 23,660          
               

Less: Net income attributable to the noncontrolling interests

         (4   
               

Net income (loss) attributable to Manning & Napier, Inc.

         
               

Net income available to Class A common stock per Basic and Diluted share

         
               

Weighted average basic and diluted shares of Class A common stock outstanding

         (5   
               

The accompanying notes are an integral part of this unaudited pro forma combined consolidated financial statement.

 

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(1) In connection with the reorganization transactions, certain of the Manning & Napier Companies will modify the vesting terms related to the current ownership interests of our employees, including our named executive officers, other than William Manning. Such individuals will be entitled to 15% of their ownership interests upon the consummation of this offering, and 15% of their ownership interests over the subsequent three years. The remaining ownership interests will be subject to performance-based vesting over such three year period (subject to an initial two-year lockup period and other selling restrictions), to be determined by a vesting committee of MNA. Such new vesting terms will not result in dilution to the number of outstanding shares of our Class A common stock. As a result of such vesting requirements, we will recognize non-cash compensation charges through 2014.

 

(2) Prior to this offering, we had a mandatory obligation upon the death of William Manning to pay a formula-driven amount to his estate. Our liability related to this mandatory redemption obligation was calculated each fiscal quarter, and the change in the liability was reflected as non-cash interest expense. Such mandatory redemption obligation will terminate immediately prior to the consummation of this offering and we will no longer reflect non-cash interest expense or the liability related to such obligation.

 

(3) As flow through entities, the Manning & Napier Companies were not historically subject to income taxes. An adjustment has been made to include assumed taxes at an effective tax rate of     % and     % for the twelve months ended December 31, 2010 and three months ended March 31, 2011, respectively, reflecting assumed federal, state and local income taxes.

 

(4) As described in “Our Structure and Reorganization,” we will be the sole managing member of Manning & Napier Group. We will own less than 100% of the economic interests in Manning & Napier Group, but will control the management of Manning & Napier Group.

 

(5) Represents the issuance of an aggregate of              shares of our Class A common stock in connection with this offering. Our shares of Class B common stock do not share in our earnings and are therefore not included in the weighted average shares outstanding or net income (loss) available per share.

 

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Unaudited Pro Forma Combined Consolidated

Statement of Financial Condition

As of March 31, 2011

 

    Manning  &
Napier
Companies

Actual
    Pro Forma
Adjustments
          Manning &
Napier,  Inc.

Pro Forma
 
    (in thousands, except share and per share amounts)  

Assets

       

Cash and cash equivalents

  $ 47,759          (1  

Accounts receivable

    18,474         

Accounts receivable—Manning & Napier Fund, Inc.

    13,377         

Marketable securities

    5,103         

Property and equipment, net

    3,014         

Prepaid expenses and other assets

    2,398         

Deferred tax asset

    —            (2  
                         

Total assets

  $ 90,125         
                         

Liabilities

       

Accounts payable

    773         

Accrued expenses and other liabilities

    23,455         

Deferred revenue

    11,174         

Stock purchase note payable

    153         

Shares liability subject to mandatory redemption

    183,607          (3  

Amounts payable under tax receivable agreement

    —            (2  
                         

Total liabilities

    219,162         

Commitment and contingencies

    —           

Shareholders’ deficit and partners’ capital

       

Class A common stock, par value $0.01 per share;              shares authorized, and              shares issued and outstanding, as adjusted)

    —            (1  

Class B common stock, par value $0.01 per share;              shares authorized, and              shares issued and outstanding, as adjusted)

    —            (5  

Common stock, $0.01 par value per share (10,000,000 shares authorized, 2,565,322 shares issued and outstanding and 5,224,050 shares issued and outstanding subject to mandatory redemption)(6)

    103          (3  

Additional paid in capital

    1,970          (1 )(2)(3)(4)   
        (5 )(7)   

Treasury stock, at cost: no shares issued or outstanding

    —           

Retained earnings (deficit)

    (133,285       (3 )(5)(7)   

Accumulated other comprehensive income

    554         

Partners’ equity (deficit)

    1,583          (3  
                         

Total shareholders’ deficit and partners’ capital attributable to Manning & Napier, Inc.

    (129,075      

Non-controlling interest

    38          (4  
                         

Total shareholders’ deficit and partners’ capital

    (129,037      
                         

Total liabilities and shareholders’ deficit and partners’ capital

  $ 90,125      $         
                         

The accompanying notes are an integral part of this unaudited pro forma combined consolidated financial statement.

 

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(1) Represents the net effect of an increase in cash and cash equivalents due to the net proceeds received by us from the sale of              shares of our Class A common stock in this offering, which we expect will be $             million (reflecting a reduction of $             relating to the costs of this offering).

 

(2) Reflects adjustments to give effect to the tax receivable agreement (as described in “Our Structure and Reorganization—Offering Transactions—Tax Receivable Agreement”) based on the following assumptions:

 

   

we will record an increase of $             million in deferred tax assets for estimated income tax effects of the increase in the tax basis of the purchased interests, based on an effective income tax rate of     % (which includes a provision for U.S. federal, state and local income taxes);

 

   

we will record $             million, representing 85% of the estimated realizable tax benefit resulting from (i) the tax basis in the intangible assets of Manning & Napier Group on the date of this offering, (ii) the increase in the tax basis of the purchased interests as noted above and (iii) certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement as an increase to the liability due to existing owners under the tax receivable agreement; and

 

   

we will record an increase to additional paid-in capital of $             million, which is an amount equal to the difference between the increase in deferred tax assets and the increase in amounts payable under the tax receivable agreement.

 

(3) Represents an adjustment to stockholders’ equity reflecting (i) any remaining retained earnings to be distributed by the corporate members of M&N Group Holdings, (ii) the termination of the mandatory redemption provision upon the death of William Manning, (iii) the elimination of partners’ equity of $             million upon consolidation and (iv) the elimination of retained earnings of $             million upon consolidation, of which $             million will remain in restricted surplus due to Exeter Trust Company’s regulatory surplus requirements.

 

(4) As described in “Our Structure and Reorganization,” we will be the sole managing member of Manning & Napier Group. We will have a less than     % economic interest in Manning & Napier Group, but will control the management of Manning & Napier Group. As a result, we will consolidate the financial results of Manning & Napier Group and will record a non-controlling interest with a corresponding decrease in additional paid-in capital to allocate a portion of our equity to the non-controlling interest on our balance sheet. The historical non-controlling interest recorded for Exeter Trust Company will no longer exist.

 

(5) In connection with this offering,              Class B units in M&N Group Holdings will be issued to William Manning, our Chairman and controlling stockholder. Subject to certain restrictions set forth in the exchange agreement and described elsewhere in this prospectus, Mr. Manning will have the right to exchange such Class B units for either the market value in cash or, at our election, shares of our Class A common stock on a one-for-one basis. See “Our Structure and Reorganization—Offering Transactions—Exchange Agreement.”

 

(6) Number of shares authorized, issued and outstanding represents the capitalization of each of MNA, AAC, MNAO and MNBD, singly and not in the aggregate, both prior to and subsequent to the reorganization transactions and this offering. The “Actual” number represents the aggregate capital of MNA, AAC, MNAO and MNBD. After giving effect to the reorganization transactions and this offering, we will not own any of the issued and outstanding common stock of these entities, and the only assets of these entities will be     % of the Class A units of M&N Group Holdings. Prior to the reorganization transactions and this offering, we had a mandatory redemption obligation upon the death of William Manning to pay a formula-driven amount to his estate. Pursuant to such mandatory redemption obligation, 5,224,050 shares of common stock of each of the entities were subject to mandatory redemption. Such obligation will terminate immediately prior to the consummation of this offering. See “Our Structure and Reorganization.”

 

(7) In connection with this offering, certain shareholders will have their vesting schedules adjusted and in some cases unvested stock will now be vested. This results in the additional non-cash compensation expense associated with the new vesting requirements.

 

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SELECTED HISTORICAL COMBINED CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables set forth selected historical combined consolidated financial and other data of the Manning & Napier Companies as of the dates and for the periods indicated. The selected combined consolidated statements of income data for the years ended December 31, 2008, 2009 and 2010, and the combined consolidated statements of financial condition data as of December 31, 2009 and 2010 have been derived from the Manning & Napier Companies’ audited combined consolidated financial statements included elsewhere in this prospectus. The selected combined consolidated statements of income data for the year ended December 31, 2007 and the combined consolidated statements of financial condition data as of December 31, 2007 and 2008 have been derived from the Manning & Napier Companies’ audited combined consolidated financial statements not included elsewhere in this prospectus. The selected combined consolidated statements of income data for the year ended December 31, 2006 and the combined consolidated statements of financial condition data as of December 31, 2006 have been derived from the Manning & Napier Companies’ unaudited combined consolidated financial statements not included in this prospectus.

The selected combined consolidated statements of income data for the three months ended March 31, 2010 and 2011 and the selected combined consolidated statements of financial condition as of March 31, 2011 have been derived from the Manning & Napier Companies unaudited combined consolidated financial statements included elsewhere in this prospectus. The selected combined consolidated statements of financial condition as of March 31, 2010 have been derived from the Manning & Napier Companies unaudited combined consolidated financial statements not included elsewhere in this prospectus. These unaudited combined consolidated financial statements have been prepared on substantially the same basis as our audited combined consolidated financial statements and include all adjustments that we consider necessary for a fair statement of our combined consolidated statements of income and financial condition for the periods and as of the date presented therein. Our results for the three months ended March 31, 2011 are not necessarily indicative of our results for a full fiscal year.

You should read the following selected historical combined consolidated financial data together with “Our Structure and Reorganization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical combined consolidated financial statements and related notes included elsewhere in this prospectus.

 

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    Year Ended December 31,     Three Months Ended
March 31,
 
    2006     2007     2008     2009     2010       2010         2011    
    (unaudited)                             (unaudited)  
    (in millions)  

Statements of income data:

             

Operating revenues

             

Investment management services revenue

  $ 95.9      $ 133.3      $ 145.6      $ 162.7      $ 255.5      $ 57.2      $ 78.0   
                                                       

Total operating revenues

    95.9        133.3        145.6        162.7        255.5        57.2        78.0   
                                                       

Operating expenses

             

Compensation and related costs

    37.9        46.8        46.3        55.6        78.4        16.8        22.9   

Sub-transfer agent and shareholder service costs

    5.6        9.9        13.1        19.9        36.8        8.5        11.7   

Other operating costs

    13.2        17.3        20.7        22.3        25.3        5.8        6.2   
                                                       

Total operating expenses

    56.7        74.0        80.1        97.8        140.5        31.1        40.8   
                                                       

Total operating income

    39.2        59.3        65.5        64.9        115.0        26.1        37.2   
                                                       

Non-operating income (loss)

             

Interest expense on shares subject to mandatory redemption (1)

    (14.5     (25.0     (6.7     (10.0     (61.2     (16.2     (13.3

Interest expense

    —          —          (0.1     —          (0.1     —          —     

Interest and dividend income

    1.1        1.2        0.6        0.1        0.1        —          —     

Net capital gains (losses) on investments

    (0.1     —          0.1        (0.2     —          —          —     
                                                       

Total non-operating income (loss)

    (13.5     (23.8     (6.1     (10.1     (61.2     (16.2     (13.3
                                                       

Income before provision for income taxes

    25.7        35.5        59.4        54.8        53.8        9.9        23.9   

Provision for income taxes

    0.5        0.6        0.4        0.4        0.7        0.2        0.2   
                                                       

Net income

  $ 25.2      $ 34.9      $ 59.0      $ 54.4      $ 53.1      $ 9.7      $ 23.7   
                                                       

 

(1) Within interest expense, we have recognized expenses related to a mandatory redemption obligation upon the death of William Manning to pay a formula-driven amount to his estate. Our liability related to this mandatory redemption obligation was calculated each fiscal quarter, and the change in the liability was reflected as non-cash interest expense. Such mandatory redemption obligation will terminate immediately prior to the consummation of this offering and we will no longer reflect non-cash interest expense or the liability related to such obligation.

 

    As of December 31,     As of
March 31,
 
    2006     2007     2008     2009     2010         2010             2011      
    (unaudited)                             (unaudited)  
    (in millions)  

Statements of financial condition data:

             

Total assets

  $ 44.5      $ 49.3      $ 41.1      $ 53.4      $ 68.3      $ 63.2      $ 90.1   

Shares liability subject to mandatory redemption (1)

    67.5        92.4        99.1        109.1        170.3        125.3        183.6   

Total liabilities

    96.7        120.3        120.8        136.7        212.1        150.2        219.2   

 

(1) Prior to this offering, we had a mandatory redemption obligation upon the death of William Manning to pay a formula-driven amount to his estate. Our liability related to this mandatory redemption obligation was calculated each fiscal quarter, and the change in the liability was reflected as non-cash interest expense. Such mandatory redemption obligation will terminate immediately prior to the consummation of this offering and we will no longer reflect non-cash interest expense or the liability related to such obligation.

 

    Year Ended December 31,     Three Months
Ended March 31,
 
    2006     2007     2008     2009     2010     2010     2011  
    (in millions, except per share data)  

Selected unaudited operating data:

             

Assets under management (1)

  $ 14,674.1      $ 18,795.7      $ 16,231.4      $ 28,271.3      $ 38,841.7      $ 31,192.8      $ 42,564.1   

EBITDA (2)

    39.7        60.1        66.7        65.8        116.4        26.4        37.5   

Economic income (2)

    40.2        60.5        66.1        64.8        115.0        26.1        37.2   

 

(1) Reflects the amount of money we managed for our clients as of the last day of the period.

 

(2) Our management uses non-GAAP financial measures to evaluate the profitability and efficiency of our business model. See page 59 of this prospectus for a reconciliation of these non-GAAP financial measures. Our non-GAAP financial measures may differ from similar measures used by other companies, even if similar terms are used to identify such measures.

 

 

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Our management uses EBITDA and economic income as financial measures to evaluate the profitability and efficiency of our business model. EBITDA and economic income are not presented in accordance with GAAP. EBITDA includes adjustments for provision for income taxes, interest income and expense and depreciation and amortization. Economic income excludes from income before provision for income taxes the non-cash interest expense associated with the liability for shares subject to mandatory redemption.

 

    Year Ended December 31,     Three Months Ended
March 31,
 
    2006     2007     2008     2009     2010       2010         2011    
    (unaudited)                             (unaudited)  
    (dollar amounts in millions)  

Reconciliation of non-GAAP financial measures:

             

Net income

    25.2        34.9        59.0        54.4        53.1        9.7        23.7   

Provision for income taxes

    0.5        0.6        0.4        0.4        0.7        0.2        0.2   
                                                       

Income before provision for income taxes

  $ 25.7      $ 35.5      $ 59.4      $ 54.8      $ 53.8      $ 9.9      $ 23.9   

Interest expense on shares subject to mandatory redemption (1)

    14.5        25.0        6.7        10.0        61.2        16.2        13.3   
                                                       

Economic income

    40.2        60.5        66.1        64.8        115.0        26.1        37.2   

Interest expense

    —          —          0.1        —          0.1        —          —     

Interest income

    (1.1     (1.2     (0.6     (0.1     (0.1     —          —     

Depreciation and amortization

    0.6        0.8        1.1        1.1        1.4        0.3        0.3   
                                                       

EBITDA

    39.7        60.1        66.7        65.8        116.4        26.4        37.5   

Revenue

    95.9        133.3        145.6        162.7        255.5        57.2        78.0   

Net income margin percentage

    26.3     26.2     40.5     33.4     20.8     17.0     30.4

Economic income margin percentage

    41.9     45.4     45.4     39.8     45.0     45.6     47.7

EBITDA margin percentage

    41.4     45.1     45.8     40.4     45.6     46.2     48.1

 

(1) Within interest expense, we have recognized expenses related to a mandatory redemption obligation upon the death of William Manning to pay a formula-driven amount to his estate. Our liability related to this mandatory redemption obligation was calculated each fiscal quarter, and the change in the liability was reflected as non-cash interest expense. Such mandatory redemption obligation will terminate immediately prior to the consummation of this offering and we will no longer reflect non-cash interest expense or the liability related to such obligation.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with “Selected Historical Combined Consolidated Financial and Other Data and the historical combined consolidated financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. See the section entitled “Forward Looking Statements.” Our actual results and the timing of selected events could differ materially from those discussed in these forward-looking statements as a result of certain factors, including those discussed in “Risk Factors” and elsewhere in this prospectus.

Overview

Business

We are an independent investment management firm that provides a broad range of investment solutions through separately managed accounts, mutual funds and collective investment trust funds. Founded in 1970, we offer equity and fixed income portfolios as well as a range of blended asset portfolios, such as life cycle portfolios, that use a mix of stocks and bonds. We serve a diversified client base of high net worth individuals and institutions, including 401(k) plans, pension plans, Taft-Hartley plans, and endowments and foundations. Our operations are based principally in the United States, with our headquarters located in Fairport, New York.

Our Distribution Channels

We derive substantially all of our revenues from investment management fees earned from providing advisory services to separately managed accounts and mutual funds and collective investment trusts—including those offered by the Manning & Napier Fund, Inc., or the Fund, and Exeter Trust Company—which are distributed through four primary channels:

 

   

Direct Channel. Our Direct Channel revenue is derived from direct relationships between high net worth individuals or institutional clients and our representatives.

 

   

Platform/Sub-Advisor Channel. Our Platform/Sub-Advisor Channel revenue is derived from investment programs or platforms, such as mutual fund wrap programs, for which we serve as an advisor or sub-advisor.

 

   

Intermediary Channel. Our Intermediary Channel revenue is derived from third-party intermediaries or financial advisors, such as those affiliated with wirehouses or independent broker dealers, that have the primary relationships with clients.

 

   

Other Retail Channel. Our Other Retail Channel revenue is derived from the Fund complex without involvement from our representatives or support teams.

 

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Our AUM was $42.6 billion as of March 31, 2011. The composition of our AUM as of December 31, 2010, by channel and portfolios, is set forth in the table below.

 

     As of December 31, 2010  
      Blended
Asset
    Equity     Fixed Income     Total  
Total AUM    (dollar amounts in millions)  

Direct Channel

   $ 11,489.0      $ 8,878.0      $ 1,068.2      $ 21,435.2   

Platform/Sub-advisor Channel

     874.6        8,263.8        22.1        9,160.5   

Intermediary Channel

     4,187.0        1,536.0        214.0        5,937.0   

Other Retail Channel

     739.4        1,569.6        —          2,309.0   
                                

Total

   $ 17,290.0      $ 20,247.4      $ 1,304.3      $ 38,841.7   
                                

Percentage of total AUM

        

Direct Channel

     30     23     3     56

Platform/Sub-advisor Channel

     2     21     0     23

Intermediary Channel

     11     4     0     15

Other Retail Channel

     2     4     0     6
                                

Total

     45     52     3     100
                                

Percentage of portfolio by channel

        

Direct Channel

     66     44     82     56

Platform/Sub-advisor Channel

     5     41     2     23

Intermediary Channel

     24     8     16     15

Other Retail Channel

     5     7     0     6
                                

Total

     100     100     100     100
                                

Percentage of channel by portfolio

        

Direct Channel

     54     41     5     100

Platform/Sub-advisor Channel

     10     90     0     100

Intermediary Channel

     71     26     3     100

Other Retail Channel

     32     68     0     100

Direct Channel. Our Direct Channel contributed 59% of our total new business production for the year ended December 31, 2010 and 56% of our total AUM as of December 31, 2010. This channel has historically been the largest driver of new business growth and we anticipate it will continue to be going forward, given our focus on forming strong, consultative relationships with our clients.

During 2010, 77% of the channel’s new business represented separate accounts while 23% represented mutual funds and collective investment trusts. As of December 31, 2010, blended asset portfolios represented 54% of the channel’s total AUM, while equity and fixed portfolios represented 41% and 5%, respectively. We anticipate blended asset portfolios will continue to constitute a meaningful portion of the Direct Channel’s new asset flows and total AUM going forward given our relationships with high net worth individuals and middle market institutions. However, relationships with larger institutions have resulted in strong growth in equity portfolios as a percentage of total AUM, which will likely continue given the breadth of our offerings, including domestic, international and global equity portfolios.

Platform/Sub-Advisor Channel. Our Platform/Sub-Advisor Channel contributed 15% of our total new business production for the year ended December 31, 2010 and represented 23% of total AUM as of December 31, 2010. To facilitate our expanding relationships in our Platform/Sub-Advisor Channel, over the last three years we have more than doubled the number of our dealer relationships in this channel from 122 to 254. This increase has expanded the number of financial intermediaries offering our mutual funds and collective

 

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investment trusts to clients and will afford us the opportunity for continued growth in the Platform/Sub-Advisor Channel as we penetrate these third-party advisory platform relationships in the future. These relationships are an important component in expanding both our 401(k) life cycle business as well as our institutional mutual fund business.

As of December 31, 2010 our mutual funds and collective investment trusts constituted 71% of Platform/Sub-Advisor Channel AUM, of which more than 85% comprised equity and international equity mutual fund portfolios; our separately managed accounts constituted the remaining 29% of Platform/Sub-Advisor Channel AUM, of which less than 1% comprised active asset allocation blended asset portfolios.

Intermediary Channel. Our Intermediary Channel contributed 11% of our total new business production for the year ended December 31, 2010, and represented 15% of our total AUM as of December 31, 2010. Mutual funds and collective investment trusts represent 32% of our total AUM in this channel, with separate accounts representing the remaining 68% of channel AUM. We anticipate greater new asset flows in our mutual funds going forward given our focus on wirehouse advisors and retirement plan advisors.

As of December 31, 2010, 71% of AUM in the Intermediary Channel was represented by blended asset portfolios, with 26% in equity portfolios and 3% in fixed income portfolios. We expect this channel to continue to be focused on blended portfolios given our emphasis on advisors that work with retirement plans. Specifically, we anticipate greater use of our life cycle mutual funds and collective investment trusts by advisors that are attracted to the technology solutions we have developed to assist advisors in performing one-on-one participant education sessions. However, our allocation to equity portfolios within this channel may also increase due to interest from wirehouse advisors.

Other Retail Channel. Our Other Retail Channel represented 6% of our total AUM as of December 31, 2010. As this channel represents mutual fund business that is not sourced or serviced by our representatives, it is the smallest channel in terms of total AUM. New asset flows in the Other Retail Channel represented 13% of overall flows during the calendar year ending December 31, 2010, driven by our strong track records and various industry accolades across our mutual fund offerings. As of December 31, 2010, 68% of the channel’s AUM represented equity portfolios, with the remaining 32% representing blended asset portfolios.

Results of Operations

Below is a discussion of our consolidated results of operations for the three months ended March 31, 2010 and 2011 and the years ended December 31, 2008, 2009 and 2010.

Key Components of Results of Operations

Overview. Changes to our operating results over time are largely driven by net new client asset flows and changes to the market value of our AUM.

An important factor influencing inflows and outflows of our AUM is the investment performance of our various investment approaches. Our variety of stock selection strategies, absolute pricing discipline, and active asset allocation management approach generally has led us to the following characteristics over the course of a typical market cycle, which includes a bull market (a period of rising stock prices coming out of a bear market), a speculative bull market (a period of overheating in the market as a whole or segments of the market) and a bear market (a period of price correction):

 

Market Phase

  

Absolute Return Characteristics

  

Relative Return Characteristics

Bull Market

   Positive Absolute Returns    Competitive Relative Returns

Speculative Bull Market

   Positive Absolute Returns    Lagging Relative Returns

Bear Market

   Negative Absolute Returns    Strong Relative Returns

 

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Coming out of a speculative bull market, we have traditionally been conservatively positioned so as to provide meaningful protection of principal for our clients. Our ability to provide such protection during significant bear markets such as 1987 and 2000 to 2002 has helped us build strong long-term relationships with clients and intermediaries that have seen the track record of our investment process over multiple market cycles.

Other components of our operating results include:

 

   

asset-based fee rates and changes in those rates;

 

   

the composition of our AUM among various portfolios, vehicles and client types; and

 

   

the rate of increase in our variable and fixed costs, which is affected by the rate of revenue increases, compensation and year-to-year changes in incentive bonuses, changes to base compensation, vendor-related costs and investment spending on new products, consultative staffing and proprietary and third-party technology development.

Assets Under Management. The following tables present the components of our AUM for our separately managed accounts and our mutual funds and collective investment trusts for the periods indicated. The first table reflects the shift in the periods indicated from AUM comprised primarily of our separately managed accounts to a more balanced AUM comprised of both our separately managed accounts and our mutual funds/collective investment trusts. The second table, together with the first table, reflects the shift in the periods indicated that has occurred due to the strong growth of our mutual funds/collective investment trusts. Except for the year ended December 31, 2008, when the S&P 500 Index declined by 37.0%, in each other period set forth below our AUM has registered year-over-year growth in excess of 27%.

 

    Separately
managed

accounts
    Mutual funds
and collective
investment trusts
    Total     Separately
managed

accounts
    Mutual funds
and collective
investment trusts
    Total  
    (dollar amounts in millions)                    

Assets under management

       

As of December 31, 2006

  $ 12,273.2      $ 2,400.9      $ 14,674.1        83.6     16.4     100.0

Net new client flows

    1,468.6        1,326.7        2,795.3         

Market appreciation

    1,095.9        230.4        1,326.3         
                             

As of December 31, 2007

    14,837.7        3,958.0        18,795.7        78.9     21.1     100.0

Net new client flows

    900.0        2,199.7        3,099.7         

Market depreciation

    (4,018.9     (1,645.1     (5,664.0      
                             

As of December 31, 2008

    11,718.8        4,512.6        16,231.4        72.2     27.8     100.0

Net new client flows

    2,158.6        4,540.3        6,698.9         

Market appreciation

    3,356.8        1,984.2        5,341.0         
                             

As of December 31, 2009

    17,234.2        11,037.1        28,271.3        61.0     39.0     100.0

Net new client flows

    3,028.4        3,435.6        6,464.0         

Market appreciation

    2,672.5        1,433.9        4,106.4         
                             

As of December 31, 2010

    22,935.1        15,906.6        38,841.7        59.0     41.0     100.0

Net new client flows

    463.6        1,572.4        2,036.0         

Market appreciation

    985.4        701.0        1,686.4         
                             

As of March 31, 2011

  $ 24,384.1      $ 18,180.0      $ 42,564.1        57.3     42.7     100.0

 

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     Separately  managed
accounts
    Mutual funds and  collective
investment trusts
    Total  

Annual growth rates

      

December 31, 2007 vs. December 31, 2006

     20.9     64.9     28.1

December 31, 2008 vs. December 31, 2007

     (21.0 %)      14.0     (13.6 %) 

December 31, 2009 vs. December 31, 2008

     47.1     144.6     74.2

December 31, 2010 vs. December 31, 2009

     33.1     44.1     37.4

Other growth rates

      

March 31, 2011 vs. December 31, 2010

     6.3     14.3     9.6

Compound annual growth rate - December 31, 2006 through December 31, 2010

     16.9     60.4     27.6

Revenue. Our revenues primarily consist of investment management fees earned from managing our clients’ AUM. We earn our investment management fees as a percentage of our clients’ AUM either as of a specified date or on a daily basis. Our investment management fees fluctuate based on the average fee rate for our investment management products, which are affected by the composition of our AUM among various portfolios and investment vehicles. We currently do not have revenues from performance fee based products.

MNA, our affiliate, serves as the investment advisor to the Fund and Exeter Trust Company. The Fund is currently a family of 27 open-end mutual funds that offer no-load share classes designed to meet the needs of a range of institutional and other investors. Exeter Trust Company is an affiliated New Hampshire-chartered trust company that sponsors a family of collective investment trusts for qualified retirement plans, including 401(k) plans. These mutual funds and collective investment trusts comprised $18.2 billion, or 43%, of our AUM as of March 31, 2011, and investment management fees from these mutual funds and collective investment trusts were $39.1 million, or 50%, of our revenues as of March 31, 2011.

MNA also serves as the investment advisor to all of our separately managed accounts, managing $24.4 billion, or 57%, of our AUM as of March 31, 2011, including assets managed as a sub-advisor to pooled investment vehicles and assets in client accounts invested in the Fund. Investment management fees from separately managed accounts represented $35.4 million, or 45%, of our revenues for the three months ended March 31, 2011.

Operating Expenses. Our largest operating expenses are employee compensation and sub-transfer agent/shareholder service fees, discussed further below, with a significant portion of these expenses varying in a direct relationship to our AUM and revenues. We review our operating expenses in relation to the investment market environment and changes in our revenues. However, we are generally willing to make expenditures as necessary even in the face of declining rates of growth in revenues in order to support our investment products, our client service levels, strategic initiatives and our long-term value.

 

   

Compensation and related costs. Employee compensation and related costs represent our largest expense, including employee salaries and benefits, incentive compensation to investment and sales professionals and stock-based compensation. These costs are affected by changes in the employee headcount and mix of existing job descriptions, competitive factors and new product and service initiatives requiring the addition of new skill sets and/or expanded or upgraded staffing. In connection with the reorganization transactions, certain of the Manning & Napier Companies will amend and restate their respective shareholders’ agreement, pursuant to which, among other things, the vesting terms related to the current ownership interests of our employees, including our named executive officers other than William Manning, will be amended. In addition, additional ownership interests will be granted to William Manning in connection with the reorganization transactions. As a result, we will recognize non-cash compensation expenses through 2014.

 

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Sub-transfer agent/shareholder service fees. Sub-transfer agent/shareholder service fees represent amounts paid to various platforms that distribute our mutual fund and collective investment trust products. These expenses increase as the AUM in our mutual fund and collective investment trust products increase.

 

   

Other operating expenses. Other operating expenses include costs for custodial services, professional fees, including accounting and legal fees, occupancy and facility costs, as well as other costs related to travel and entertainment expenses, insurance, market data service expenses and all other miscellaneous costs associated with managing the day-to-day operations of our business. Following this offering, we expect to incur additional expenses as a result of becoming a public company, including expenses related to additional staffing, director fees, director and officer insurance, Sarbanes-Oxley compliance and other SEC reporting and compliance requirements, professional fees and other expenses. These expenses will increase our operating expenses and reduce net income.

Non-Operating Income (Loss). Non-operating income (loss) includes interest expense, interest and dividend income, and realized gains (losses) on sales of marketable securities. Within interest expense, we have recognized expenses related to the agreement with William Manning, our Chairman and controlling stockholder. Prior to this offering, we had a mandatory redemption obligation upon the death of William Manning to pay a formula-derived amount to his estate. Our liability related to this mandatory redemption obligation was calculated each fiscal quarter, and the change in the liability was reflected as non-cash interest expense. Such mandatory redemption obligation will terminate immediately prior to the consummation of this offering and we will no longer reflect non-cash interest expense or the liability related to such agreement.

Provision for Income Taxes. Historically, we have not had a significant provision for income taxes due to the fact that the combined entity is generally made up of S-corporations and limited liability companies. However, following this offering, we anticipate an increase in the provision for income taxes due to the future requirement to include provisions for federal and state income taxes as a result of Manning & Napier’s C-corporation status, offset by the benefits of the tax receivable agreement. See “Unaudited Pro Forma Combined Consolidated Financial Information.”

Critical Accounting Policies and Estimates

The combined consolidated financial statements are prepared in accordance with GAAP and related rules and regulations of the SEC. The preparation of combined consolidated financial statements in conformity with GAAP requires management to make estimates or assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Accordingly, actual results could differ from these estimates or assumptions and may have a material effect on the combined consolidated financial statements.

Accounting policies are an integral part of our financial statements. A thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our financial condition. Our management has identified the following significant accounting policies that are critical to understanding our business and prospects for future performance, as these policies affect the reported amounts of revenue and other significant areas that involve management’s judgment and estimates:

 

   

Shares subject to mandatory redemption; and

 

   

Revenue recognition.

These policies and our procedures related to these policies are described in detail below. In additional, please refer to the notes to our combined consolidated financial statements included elsewhere in this prospectus for further discussion of our accounting policies.

 

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Shares Subject to Mandatory Redemption

Prior to this offering, we entered into an agreement with William Manning, pursuant to which we had a mandatory redemption obligation upon his death to pay his pro rata share of net revenue (as defined in such agreement) for the four quarters immediately preceding Mr. Manning’s death. In accordance with the requirements of accounting for certain financial instruments with characteristics of both liabilities and equity, we have recognized a liability for shares subject to mandatory redemption in our financial statements included elsewhere in this prospectus. This will change as we transition from a private company to a public company.

Revenue Recognition

The majority of our revenues are based on fees charged to manage customers’ portfolios. Investment management fees are generally computed as a percentage of AUM and recognized as earned. Fees for providing investment advisory services are computed and billed in accordance with the provisions of the applicable investment management agreements. For our separately managed accounts, clients generally pay investment management fees in advance for a semi-annual bill cycle. In these cases, we defer the revenue and recognize it over a six month period. In some cases, clients will pay investment management fees quarterly in arrears. For these cases, we estimate revenues based on the prior bill cycle and record an adjustment when the actual bill is calculated at the end of the quarter. Revenue is also earned for providing custodial services, sub-advisor services to mutual funds and collective investment trusts and other services.

For mutual funds and collective investment trust vehicles, our fees are calculated and earned daily based on AUM.

All other revenue earned by us is recognized on a GAAP accounting basis as earned per the terms of the specific contract.

Use of Non-GAAP Financial Measures

To provide investors with greater insight, promote transparency and allow for a more comprehensive understanding of the information used by management in its financial and operational decision-making, we supplement our combined consolidated financial statements presented on a GAAP basis with a non-GAAP financial measure of earnings. Our management uses EBITDA and economic income and also will use Adjusted EBITDA and economic net income as financial measures to evaluate the profitability and efficiency of our business model. Adjusted EBITDA, EBITDA, economic income and economic net income are not presented in accordance with GAAP. Economic income excludes from income before provision for income taxes the non-cash interest expense associated with the liability for shares subject to mandatory redemption and the reorganization-related share-based compensation, which results in non-cash compensation expense reported over the vesting period. Economic net income assumes that all of our economic income would be subject to federal, state and local income tax. We believe these non-GAAP financial measures are useful since management does not consider these non-cash expenses when evaluating financial results. Our non-GAAP financial measures may differ from similar measures used by other companies, even if similar terms are used to identify such measures.

We use non-GAAP financial measures to assess the strength of the underlying operations of our business. We believe these adjustments, and the non-GAAP financial measures derived from them, provide information to better analyze our operations between periods and over time. We believe non-GAAP financial measures within the combined consolidated statements of income data included elsewhere in this prospectus specific to the accounting for certain financial instruments with characteristics of both liabilities and equity are useful because the resulting expenses will not be recognized upon completion of this offering. Investors should consider non-GAAP financial measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP.

 

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Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010

Assets Under Management

The following table reflects changes in our AUM for the three months ended March 31, 2011 and 2010:

 

     Three Months Ended March 31,      Increase (Decrease)  
             2011                        2010                 $         %      
     (unaudited)               
     (dollar amounts in millions)  

Separately managed accounts

          

Beginning assets under management

   $ 22,935.1       $ 17,234.2       $ 5,700.9        33

Net new client flows

     463.6         479.1         (15.5     (3 %) 

Market appreciation

     985.4         628.7         356.7        57
                            

Ending assets under management

   $ 24,384.1       $ 18,342.0       $ 6,042.1        33
                            

Mutual funds and collective investment trusts

          

Beginning assets under management

   $ 15,906.6       $ 11,037.1       $ 4,869.5        44

Net new client flows

     1,572.4         1,438.5         133.9        9

Market appreciation

     701.0         375.2         325.8        87
                            

Ending assets under management

   $ 18,180.0       $ 12,850.8       $ 5,329.2        41
                            

Total assets under management

          

Beginning assets under management

   $ 38,841.7       $ 28,271.3       $ 10,570.4        37

Net new client flows

     2,036.0         1,917.6         118.4        6

Market appreciation

     1,686.4         1,003.9         682.5        68
                            

Ending assets under management

   $ 42,564.1       $ 31,192.8       $ 11,371.3        36
                            

Our total AUM increased by $11.4 billion, or 36%, to $42.6 billion as of March 31, 2011 from $31.2 billion as of March 31, 2010. As of March 31, 2011, the composition of our AUM was 43% in mutual funds and collective investment trusts and 57% in separate accounts as compared to 41% in mutual funds and collective investment trusts and 59% in separate accounts as of March 31, 2010. Separate account and mutual funds and collective investment trusts AUM increased by 33% and 41%, respectively, as of March 31, 2011 compared to March 31, 2010. Of the $3.7 billion increase in AUM from December 31, 2010 to March 31, 2011, 55% was driven by net new client flows of $2.0 billion, primarily due to inflows from new and existing financial intermediary relationships. Of the $2.0 billion net new client flows, $1.6 billion, or 77%, was derived from mutual fund and collective investment trusts and 23% was derived from separately managed accounts; 45% of the increase in our total AUM for the three months ended March 31, 2011 came from investment gains.

Our market appreciation during the three months ended March 31, 2011 constituted a 4.3% rate of increase in our total AUM. The investment gain was 4.3% in separately managed accounts and 4.4% in mutual funds and collective investment trusts, reflecting primarily a difference in the mix of portfolios in the two investment vehicles.

The rates of increase in AUM during the three months ended March 31, 2011 were most rapid, in excess of 12%, for our equity portfolios. The blended asset portfolios also experienced strong growth of 7%. Equity portfolios contributed 70% of our total increase in AUM as of March 31, 2011 compared to March 31, 2010, while blended asset portfolios contributed 30% of our total increase in AUM as of March 31, 2011 compared to March 31, 2010.

 

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The following table sets forth our results of operations for the three months ended March 31, 2011 and 2010:

 

     Three Months Ended March 31,     Increase (Decrease)  
             2011                     2010             $         %      
     (unaudited)              
     (dollar amounts in thousands)  

Statements of income data:

        

Operating revenues

        

Investment management services revenue

   $ 78,040      $ 57,210      $ 20,830        36

Operating expenses

        

Compensation and related costs

     22,894        16,775        6,119        36

Sub-transfer agent and shareholder service costs

     11,695        8,498        3,197        38

Other operating costs

     6,225        5,789        436        8
                          

Total operating expenses

     40,814        31,062        9,752        31
                          

Total operating income

     37,226        26,148        11,078        42
                          

Non-operating income (loss)

        

Interest expense on shares subject to mandatory redemption

     (13,288     (16,219     2,931        (18 %) 

Interest expense

     (9     (4     (5     125

Interest and dividend income

     14        11        3        27

Net capital gains (losses) on investments

     3        3        —          0
                          

Total non-operating income (loss)

     (13,280     (16,209     2,929        (18 %) 
                          

Income before provision for income taxes

     23,946        9,939        14,007        141

Provision for income taxes

     286        211        75        36
                          

Net income

   $ 23,660      $ 9,728      $ 13,932        143
                          

Revenues

Our investment management services revenue increased by $20.8 million, or 36%, to $78.0 million for the three months ended March 31, 2011 from $57.2 million for the three months ended March 31, 2010. This increase was driven primarily by an $11.7 billion, or 40%, increase in our average AUM to $40.9 billion for the three months ended March 31, 2011 from $29.2 billion for the three months ended March 31, 2010.

Operating Expenses

Our operating expenses increased by $9.7 million, or 31%, to $40.8 million for the three months ended March 31, 2011 from $31.1 million for the three months ended March 31, 2010. This increase was driven primarily by increases in compensation and sub-transfer agent and shareholder service fees.

Compensation and related costs increased by $6.1 million, or 36%, to $22.9 million for the three months ended March 31, 2011 from $16.8 million for the three months ended March 31, 2010. This increase was driven in large part by higher incentive compensation due to analyst bonuses and sales representative commissions, as well as increases in overall firm-wide headcount of 11%, to 414 as of March 31, 2011 from 374 as of March 31, 2010.

Sub-transfer agent and shareholder service fees increased by $3.2 million, or 38%, to $11.7 million for the three months ended March 31, 2011 from $8.5 million for the three months ended March 31, 2010. The increase was generally attributable to a 46% increase in mutual funds and collective investment trusts average AUM for the three months ended March 31, 2011 compared to March 31, 2010.

 

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Non-Operating Income (Loss)

Non-operating income (loss) decreased by $2.9 million, or 18%, to $13.3 million for the three months ended March 31, 2011 from $16.2 million for the three months ended March 31, 2010. The decrease was primarily due to the decrease in non-cash interest expense on the shares subject to mandatory redemption. We have recognized interest expense resulting from the period-to-period change in the amount of the liability for shares subject to mandatory redemption.

Provision for Income Taxes

Provision for income taxes increased by $0.1 million, or 36%, to $0.3 million for the three months ended March 31, 2011 from $0.2 million for the three months ended March 31, 2010. The increase was primarily due to a 42% increase in operating income for the three months ended March 31, 2011 compared to the three months ended March 31, 2010.

Year Ended December 31, 2010 Compared to Year Ended December 31, 2009

Assets Under Management

The following table reflects changes in our AUM for the years ended December 31, 2010 and 2009:

 

     Year Ended December 31,      Increase (Decrease)  
             2010                      2009              $         %      
     (dollar amounts in millions)  

Separately managed accounts

          

Beginning assets under management

   $ 17,234.2       $ 11,718.8       $ 5,515.4        47

Net new client flows

     3,028.4         2,158.6         869.8        40

Market appreciation

     2,672.5         3,356.8         (684.3     (20 %) 
                            

Ending assets under management

   $ 22,935.1       $ 17,234.2       $ 5,700.9        33
                            

Mutual funds and collective investment trusts

          

Beginning assets under management

   $ 11,037.1       $ 4,512.6       $ 6,524.5        145

Net new client flows

     3,435.6         4,540.3         (1,104.7     (24 %) 

Market appreciation

     1,433.9         1,984.2         (550.3     (28 %)