Grabbing for its share of the high-net-worth market, Franklin Resources Inc. of San Mateo, Calif., said Wednesday that it agreed to buy the New York specialty trust and investment management firm Fiduciary Trust International for $825 million in stock.
The combined company would have more than $280 billion of assets under management and link Franklin's product and distribution capabilities in the United States and abroad with Fiduciary Trust's roster of millionaire private clients, endowments, and foundations.
The deal, set to close in the first quarter, is yet another in a string of mergers in the high-growth - and highly profitable - market for providing investment advice to the very wealthy. Charles Schwab Corp. recently bought the New York private bank U.S. Trust Corp., broadening its largely online discount brokerage client base and offering U.S. Trust a new way to recruit customers who have more than $2 million of assets to invest.
Franklin specializes in selling mutual funds under the Franklin, Templeton, and Mutual Series brands to retail investors. It said Wednesday that it hopes to market these products to Fiduciary Trust's customers and sell Fiduciary Trust's estate and trust planning services through its retail network. The firms said they also plan to boost sales of each other's services in the defined-benefit and defined-contribution plan marketplace.
Executives from the companies said the deal would create an "end-to-end" operation able to provide a broader array of services, combining value- and growth-style investment management and retail mutual funds and separately managed investment accounts. It would bring Fiduciary Trust into the defined-contribution-plan market and put Franklin in the business of managing funds for endowments and foundations.
"Our priority will be to build a global platform capable of servicing investment professionals for both the retail and institutional markets," said Charles B. Johnson, chairman and chief executive officer of Franklin Resources.
Marty Flanagan, Franklin's chief financial officer, called the deal a "great opportunity to broaden and deepen our institutional and high-net-worth businesses."
Franklin would be paying a steep price. The deal, which calls for a floating exchange ratio of 2.6752 or 3.2697 Franklin shares for each share of Fiduciary Trust, is valued at roughly $113 a share, a premium of 74.4% over Fiduciary's Oct. 24 closing price. The companies have set aside an $85 million cash and stock option retention pool.
Consultants said the hefty price is a good indicator of the market's eagerness to build asset management capabilities. With so many firms scrambling for fewer and fewer targets, those that want to be in the business will have to strike quickly, said Russ Alan Prince, a financial services consultant in Shelton, Conn. "You have to be in there now, or sooner than now," he said.
"Everyone's fixated with the high-net-worth sector," said Peter Carroll, a consultant at Oliver Wyman & Co. in New York. "Brokers, online brokers, private bankers are all realizing that they are missing something."
Other acquisition candidates are Delaware's Wilmington Trust Corp., Chicago's Northern Trust Corp., and New York's Neuberger Berman LLC, analysts said.
Fiduciary Trust, founded in 1931, serves 1,000 families and 500 institutional clients. It manages $50 billion of assets - $14 billion for individuals and families and the rest for defined-benefit plans and other institutions, including Princeton University and the Metropolitan Museum of Art.
The company is to retain its identity and New York headquarters. Anne M. Tatlock would continue to be chairman and CEO and would join the office of the chairman at Franklin as well as its board of directors.
The companies say Fiduciary Trust's investment-management style complements Franklin's value-oriented approach. Combined, the companies would have $135 billion of assets in retail mutual funds, $89 billion for institutions, and $14 billion for high-net-worth individuals and families. Franklin's reach would enable Fiduciary Trust to expand its high-net-worth and institutional businesses worldwide without substantial expenditures, said Michael Magdol, chief financial officer at Fiduciary. Franklin manages $230 billion of assets and distributes products in 125 countries.
The deal is expected to bring cost savings of $46.3 million, 40% of it from systems integration, after two years.
"The resources required for a technological platform in the high-net-worth business are compelling," Mr. Magdol said. "We wanted someone who could add great value to that area."