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Franklin (BEN) Expands in Retirement Space With Putnam Buyout
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Franklin Resources, Inc. (BEN - Free Report) entered a strategic partnership with Power Corporation of Canada and its subsidiaries, the Power Group of Companies. Power Corporation holds controlling interests in Great-West Lifeco, Inc. and IGM Financial, with assets under management of $2.1 trillion as of Mar 31, 2023.
As part of the partnership, Franklin will acquire Putnam Investments — a global asset management firm with $136 billionin AUM as of April 2023 end from Great-West. This will be acquired for around $925 millionin a stock-and-cash deal. With this, Great-West will hold a 6.2% stake in BEN.
Great-West will also provide an initial long-term AUM of $25 billion to Franklin Templeton’s specialist investment managers within 12 months of closing. This amount is expected to increase in the next several years.
The transaction is expected to close in fourth-quarter 2023, subject to customary closing norms.
Transaction Details
BEN will pay around $825 million in stock consideration at closing and another $100 million in cash 180 days after the closing of Putnam Investment. Based on BEN’s closing share price, it will issue 33.3 million shares of its common stock to Great-West. Of this, 26.2 million shares, representing 4.9% of BEN’s outstanding common stock, are subject to a 5-year lock-up, while the remaining 7.1 million shares (1.3% ownership) are subject to a 180-day lock-up.
Franklin Templeton will pay up to $375 million in contingent cash consideration for 3-7 years following the closing, related to revenue growth targets from the partnership. BEN will also acquire seed capital investments of around $165 million at closing.
Deal Rationale & Financial Benefits
The acquisition of Putnam will increase BEN’s defined contribution AUM to around $90 billion and expand its insurance-related AUM to $150 billion, thereby accelerating BEN’s growth in the retirement markets. It will also add scale and efficiency to the mutual fund platform.
The transaction is anticipated to be modestly accretive to run-rate adjusted EPS by the end of the first year after the deal closing, including cost synergies.
Jenny Johnson, president and CEO of Franklin Templeton, remarked, “Power and Great-West are global leaders across financial services, particularly in the wealth, insurance and retirement channels. With outstanding investment performance, Putnam will add complementary capabilities to our existing specialist investment managers to meet the varied needs of our clients and will increase Franklin Templeton’s defined contribution AUM.”
Conclusion
By funding the acquisition primarily through stock issuance, BEN continues to maintain financial flexibility, while making investments across its company. With no debt issuance required for the deal, the company’s cash and investments are projected to be intact at the current level of $6.5 billion. This will enable it to pursue additional alternative asset expertise and expand distribution opportunities in the future.
In the past few years, Franklin has grown through acquisitions, thereby, enhancing its foothold and investment capabilities across different products. In November 2022, the company closed the acquisition of Alcentra, one of the largest European alternative credit managers. In April 2022, the company completed the acquisition of Lexington, which boosted its alternative asset offerings.
Over the past six months, shares of BEN have lost 11.9% compared with the industry’s decline of 10%.
Mizuho Financial Group, Inc. (MFG - Free Report) agreed to acquire Greenhill & Co., Inc. at $15 per share in an all-cash transaction. This values Greenhill at $550 million and includes debt.
Greenhill is a global investment bank that offers a wide range of financial services to clients across the globe. The acquisition will substantially expedite Mizuho Financial's investment banking (IB) expansion initiatives.
Fifth Third Bancorp (FITB - Free Report) , through its indirect wholly owned subsidiary, acquired Rize Money, Inc., an embedded payments platform. With this buyout, FITB expanded its embedded payment offerings.
The embedded payments business’s double-digit growth and projection of annual revenues of more than $130 million for the ongoing year make it an attractive space for growth. Hence, FITB’s efforts to expand its embedded payments business through this acquisition is a strategic fit.
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Franklin (BEN) Expands in Retirement Space With Putnam Buyout
Franklin Resources, Inc. (BEN - Free Report) entered a strategic partnership with Power Corporation of Canada and its subsidiaries, the Power Group of Companies. Power Corporation holds controlling interests in Great-West Lifeco, Inc. and IGM Financial, with assets under management of $2.1 trillion as of Mar 31, 2023.
As part of the partnership, Franklin will acquire Putnam Investments — a global asset management firm with $136 billionin AUM as of April 2023 end from Great-West. This will be acquired for around $925 millionin a stock-and-cash deal. With this, Great-West will hold a 6.2% stake in BEN.
Great-West will also provide an initial long-term AUM of $25 billion to Franklin Templeton’s specialist investment managers within 12 months of closing. This amount is expected to increase in the next several years.
The transaction is expected to close in fourth-quarter 2023, subject to customary closing norms.
Transaction Details
BEN will pay around $825 million in stock consideration at closing and another $100 million in cash 180 days after the closing of Putnam Investment. Based on BEN’s closing share price, it will issue 33.3 million shares of its common stock to Great-West. Of this, 26.2 million shares, representing 4.9% of BEN’s outstanding common stock, are subject to a 5-year lock-up, while the remaining 7.1 million shares (1.3% ownership) are subject to a 180-day lock-up.
Franklin Templeton will pay up to $375 million in contingent cash consideration for 3-7 years following the closing, related to revenue growth targets from the partnership. BEN will also acquire seed capital investments of around $165 million at closing.
Deal Rationale & Financial Benefits
The acquisition of Putnam will increase BEN’s defined contribution AUM to around $90 billion and expand its insurance-related AUM to $150 billion, thereby accelerating BEN’s growth in the retirement markets. It will also add scale and efficiency to the mutual fund platform.
The transaction is anticipated to be modestly accretive to run-rate adjusted EPS by the end of the first year after the deal closing, including cost synergies.
Jenny Johnson, president and CEO of Franklin Templeton, remarked, “Power and Great-West are global leaders across financial services, particularly in the wealth, insurance and retirement channels. With outstanding investment performance, Putnam will add complementary capabilities to our existing specialist investment managers to meet the varied needs of our clients and will increase Franklin Templeton’s defined contribution AUM.”
Conclusion
By funding the acquisition primarily through stock issuance, BEN continues to maintain financial flexibility, while making investments across its company. With no debt issuance required for the deal, the company’s cash and investments are projected to be intact at the current level of $6.5 billion. This will enable it to pursue additional alternative asset expertise and expand distribution opportunities in the future.
In the past few years, Franklin has grown through acquisitions, thereby, enhancing its foothold and investment capabilities across different products. In November 2022, the company closed the acquisition of Alcentra, one of the largest European alternative credit managers. In April 2022, the company completed the acquisition of Lexington, which boosted its alternative asset offerings.
Over the past six months, shares of BEN have lost 11.9% compared with the industry’s decline of 10%.
Image Source: Zacks Investment Research
Currently, BEN carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Inorganic Growth Efforts by Other Companies
Mizuho Financial Group, Inc. (MFG - Free Report) agreed to acquire Greenhill & Co., Inc. at $15 per share in an all-cash transaction. This values Greenhill at $550 million and includes debt.
Greenhill is a global investment bank that offers a wide range of financial services to clients across the globe. The acquisition will substantially expedite Mizuho Financial's investment banking (IB) expansion initiatives.
Fifth Third Bancorp (FITB - Free Report) , through its indirect wholly owned subsidiary, acquired Rize Money, Inc., an embedded payments platform. With this buyout, FITB expanded its embedded payment offerings.
The embedded payments business’s double-digit growth and projection of annual revenues of more than $130 million for the ongoing year make it an attractive space for growth. Hence, FITB’s efforts to expand its embedded payments business through this acquisition is a strategic fit.