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Raymond James (RJF) Inks $1.1B Deal to Buy TriState (TSC)

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With an aim to further diversify its deposit gathering capabilities and revenue mix, Raymond James (RJF - Free Report) has announced a transaction to acquire TriState Capital Holdings, Inc. (TSC - Free Report) . The company will shell out roughly $1.1 billion in a cash-cum-stock deal.

Shares of Raymond James declined 2.1% while TriState Capital jumped 26.2% in aftermarket trading in response to the announcement of the agreement. The transaction is still subject to approvals from the regulators and TriState Capital shareholders.

Supported by a digital lending platform and a solid risk management technology system, TriState Capital provides securities-based loans (SBL) to high-net-worth borrowers across the United States. Following the deal closure, Raymond James’ SBL balance is likely to be approximately 33% of net loans (on a pro forma basis).

With a branchless bank model, TriState Capital had $9.9 billion in total loans and $10.8 billion in total deposits, as of Sep 30, 2021. In addition, its asset management division – Chartwell Investment Partners – had $11.5 billion in assets under management (AUM) largely invested in equity and fixed income strategies.

Paul Reilly, Chairman and CEO of Raymond James, said, “Importantly, this acquisition further illustrates our commitment to utilize excess capital through organic and inorganic growth that we expect to drive strong returns for shareholders over the long term.”

Details

Under the terms of the deal, shareholders of TriState Capital will get $6 in cash and 0.25 Raymond James shares for each share of TriState Capital. This represents per share consideration of $31.09 based on Raymond James’ closing price on Oct 19.

Further, Raymond James has entered into a separate agreement with the only holder of the TriState Capital Series C Perpetual Non-Cumulative Convertible Non-Voting Preferred Stock under which these preferred stocks will be “converted in to common shares at the prescribed exchange ratio and cashed out at $30 per share.” TriState Capital’s other two perpetual preferred stocks – Series A and Series B – will be converted into equivalent Raymond James preferred stocks.

After the deal closure, which is expected to occur in 2022, TriState Capital will continue to operate as a separate firm and as an “independently chartered bank subsidiary of Raymond James.” Also, the firm’s current top management – Chairman Jim Getz, TriState Capital’s CEO Brian Fetterolf and Chartwell’s CEO Tim Riddle – will remain in their current roles. In order to support the firm’s robust growth and high service levels, nearly 350 associates are expected to keep working from the present office locations.

Apart from this, Chartwell Investment Partners will continue as an independent brand and management while operating as a subsidiary of Carillon Tower Advisers (Raymond James’ asset management unit) with a pro forma combined AUM of almost $80 billion. Chartwell is expected to leverage Carillon’s multi-boutique structure to enhance scale, support distribution, and realize operational and marketing synergies.

Financial Gains

In the first full year post-completion, the transaction is anticipated to be accretive to earnings (excluding acquisition-related charges), with more than 8% accretive to earnings after the third year. After assuming share repurchases to offset shares issued as part of the deal post-closure, accretion projections improve approximately by 400 basis points.

Raymond James expects that the main driver of cost synergies will be the replacement of TriState Capital’s high-cost deposits with that of Raymond James’ lower-cost deposits from the Raymond James Bank Deposit Program.

Conclusion

Given a strong liquidity position, Raymond James has accomplished several strategic deals over the past few years. In July, the company announced its intention to make an offer for the entire issued and to be issued share capital of the U.K.-based Charles Stanley Group PLC while in May, it inked a deal to acquire Cebile Capital.

Earlier in March, the company acquired a boutique investment bank, Financo, while in 2020, it acquired NWPS Holdings, Inc. The company has also expanded into Europe and Canada with the help of opportunistic acquisitions. These deals poise Raymond James well for future growth.

As management looks forward to actively growing through acquisitions with an aim to further strengthen Private Client Group and Asset Management segments, the current transaction is a step in the same direction.

Shares of Raymond James have rallied 59.4% so far this year, outperforming the industry’s growth of 41.7%.
 

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Currently, Raymond James carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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