Morgan Stanley has agreed to pay $7bn in money and shares to purchase funding supervisor Eaton Vance in a deal that can create one of many world’s largest asset managers.
Morgan Stanley Funding Administration will virtually double in measurement to $1.2tn in belongings with the acquisition of Eaton Vance, considered one of America’s oldest fund homes. The transfer will go away it higher positioned to compete towards the rising would possibly of passive fund homes BlackRock and Vanguard, in addition to towards the asset administration arms of rival banks JPMorgan and Goldman Sachs.
The $7bn half-cash half-stock deal comes simply days after Morgan Stanley closed a $13bn deal to purchase on-line brokerage ETrade and fewer than two years after its $900m acquisition of worker inventory plans supervisor Solium.
“Eaton Vance is an ideal match for Morgan Stanley,” mentioned James Gorman, chairman and chief government of the US financial institution.
“It supplies high quality, scale and the worth added fastened revenue enterprise, it enhances our consumer attain,” he mentioned, including that the deal would mix Eaton Vance’s distribution within the US with Morgan Stanley’s worldwide distribution, offering “compelling long run monetary advantages”.
The acquisition marks an try by Morgan Stanley to determine a robust foothold within the profitable asset administration trade, the place revenue margins stay excessive regardless of stockpickers coming below intense payment strain from the fast development of passive investing. Mr Gorman mentioned two years in the past that he wished to double the funding division in measurement within the subsequent 5 to seven years.
In addition to including $500bn of belongings below administration to MSIM, the deal will supply new merchandise in fastened revenue and environmental, social and governance investing, including firepower to a division that delivers below 10 per cent of the financial institution’s revenues in a typical yr.
Mr Gorman mentioned on Thursday that, for acquisitions, “that is completely it for some time” for Morgan Stanley. He defended the 38 per cent premium for the Eaton Vance deal as a “honest worth for an important enterprise”.
He mentioned: “It seems to be like a excessive premium and a full worth however the way in which you get offers completed is you supply a good worth for an important enterprise. You don’t get nice companies low-cost.”
Mr Gorman mentioned the restricted overlap between the 2 corporations would assist the mixing of the merger succeed. “Many asset managers are merging merely to get scale [ . . .] with that comes plenty of friction.”
Morgan Stanley’s buy of Eaton Vance is the most recent in a string of offers by midsized asset managers, aimed toward serving to them compete towards the world’s greatest gamers. It follows the merger of Customary Life and Aberdeen in 2017, Invesco’s buy of Oppenheimer final yr, and Franklin Templeton’s takeover of Legg Mason this yr, for $6.5bn together with debt.
Final week, the hedge fund run by Nelson Peltz mentioned it had purchased stakes in asset managers Invesco and Janus Henderson, arguing the trade was ripe for additional consolidation.
Dan Simkowtiz, head of MSIM, mentioned that deal had “nothing to do with” consolidation within the funding administration trade and was pushed by a need to fill gaps inside Morgan Stanley’s personal enterprise and purchase a sexy asset earlier than another person did.
Eaton Vance shareholders will obtain $28.25 in money and $28.25 in Morgan Stanley shares, a complete consideration of $56.50 versus Wednesday evening’s closing worth just under $41. They may even get a one-time money dividend, from Eaton Vance’s personal reserves, of $4.25 earlier than closing.
Shares in Eaton Vance have been up 47 per cent in Thursday buying and selling.
Mr Gorman has spent greater than a decade shifting Morgan Stanley away from its heavy reliance on risky funding financial institution revenues to 1 with extra steady revenues pushed by wealth and asset administration.
He mentioned: “A decade in the past, our asset administration and wealth administration companies had vibrant spots in them, however they weren’t sufficiently big . . . the place they may present actual stability to the remainder of the organisation. That is precisely what we wished to engineer.”
The US financial institution expects to have the ability to lower about 4 per cent from the mixed expense base of Eaton Vance and MSIM, delivering annual financial savings of $150m. The financial institution mentioned the deal can be impartial for earnings per share within the quick time period, and “marginally accretive thereafter”.
Morgan Stanley has loved a current run of record-breaking outcomes, and was the one massive Wall Road financial institution to publish an increase in earnings within the second quarter.
Eaton Vance registered web outflows of $454m within the 9 months ending July 31 (the primary three quarters of its fiscal yr ending October 31), in contrast with constructive inflows of $14.1bn in the identical interval of the earlier yr.
Further reporting by Chris Flood in London