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Waddell & Reed (WDR) to be Acquired by Macquarie for $1.7B

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Waddell & Reed Financial (WDR - Free Report) has inked an agreement to be acquired by Macquarie Asset Management, the asset management division of Sydney, Australia-based Macquarie Group. The all-cash deal, valued at $1.7 billion, is expected to close in mid-2021.

Following this announcement, shares of Waddell & Reed soared 48.7% in aftermarket trading.

Deal Details & Other Terms

Per the deal terms, Macquarie will buy Waddell & Reed’s all outstanding shares by paying $25 per share. This represents a premium of roughly 48% to Waddell & Reed’s closing price for the last trading day before deal was announced.

The deal will substantially improve Macquarie Asset Management’s assets under management (AUM) balance, which is expected to grow to $465 billion. As of Sep 30, 2020, Waddell & Reed had AUM of $67.9 billion, while Macquarie had around A$554.9 billion.

Moreover, the combined business will be among the top 25 “actively managed, long-term, open-ended U.S. mutual fund manager” in terms of AUM balance. The entity’s “scale and diversification” will place it in a very competitive position to be able to “maintain and extend its high standards of service to clients and partners.”

Macquarie already has footprint in U.S. asset management space through Delaware Funds by Macquarie, which it acquired from Lincoln Financial Group in 2010.

Upon closure, Macquarie will divest Waddell & Reed’s wealth management business to LPL Financial Holdings (LPLA - Free Report) for $300 million. As of Sep 30, 2020, the business had $62.7 billion of assets under administration. Further, LPL Financial has entered into a long-term partnership with Macquarie. Thus, Macquarie will become one of its “top tier strategic asset management partners.”

Following the acquisition of wealth management business, LPL Financial expects run-rate EBITDA accretion of more than $50 million, and onboarding and integration costs of approximately $85 million in the 12 months following closure. Further, the deal will be accretive to the company’s run-rate earnings “prior to intangibles following asset transfer.”

The deal, already approved by board of directors of all three companies, is still subject to approval of Waddell & Reed’s shareholders. Also, it is subject to regulatory approvals.

Management Quotes

Philip J. Sanders, CEO of Waddell & Reed said, “Over the past few years, we have been focused on leveraging our strong heritage as the foundation for transforming our firm into a more diversified and growth-oriented financial services enterprise. The long-term partnership between Macquarie and LPL as part of this transaction accelerates that transformation and ultimately will benefit our clients and independent financial advisors while delivering significant value to our stockholders.”

Martin Stanley, Head of Macquarie Asset Management, stated “The addition of Waddell & Reed Financial, Inc. and our enhanced partnership with LPL will significantly increase our ability to grow and invest in our combined business for the benefit of our clients. Ivy Investments’ complementary investment capabilities will provide diversification to Macquarie Asset Management’s capabilities and client base. “

Dan Arnold, President and CEO of LPL Financial, said “Waddell & Reed advisors are highly experienced and well-respected throughout the industry. They are a terrific fit both culturally and strategically, and we welcome them to the LPL family. Looking ahead, we expect our capabilities and resources will benefit their practices and help them unlock additional value and growth.”

Price Performance & Zacks Rank

Shares of Waddell & Reed have rallied 16.9%, over the past six months, and LPL Financial recorded 19.9% growth.



At present, Waddell & Reed sports a Zacks Rank #1 (Strong Buy), while LPL Financial has a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Our Take

Consolidation in asset management industry has been going on for quite a few years now. Cut throat competition and a shift toward passive fund management are the key reasons for the trend. Further, industry players are facing increasing costs related to technology, rise in outflows, fee pressure and heightened regulations, which are big headwinds.

Even if we just look at this year’s M&As in the industry, there have been some notable deals. These include Franklin Resources’ (BEN - Free Report) acquisition of Legg Mason for $4.5 billion in July. Then, in October, Morgan Stanley inked a deal to acquire Eaton Vance (EV - Free Report) for $7 billion.

Apart from these, there have been several on-bolt acquisitions, which improved the acquirer’s operating efficiency and technological product offerings.

The wave of consolidation is expected to continue next year as the industry grapples with the aftereffects of the coronavirus pandemic and above-mentioned factors.

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