Mellon Financial Corp. says its purchase Friday of U.S. Trust's planned-giving services group makes it the largest provider of charitable giving services in the country, and analysts say this could be the first of many deals under the Pittsburgh company's new leadership.
Analysts viewed the U.S. Trust announcement as the first step in a major growth push for Mellon under Robert Kelly, who was named chairman and chief executive officer in February. Mr. Kelly told American Banker on Jan. 31 that Mellon was much more interested in buying than selling.
"I think it is clear that Mr. Kelly is not an operations guy; he was brought in to make deals," said Richard X. Bove, an analyst at Punk, Ziegel & Co. "Mellon is not in financial difficulty. Mr. Kelly wasn't brought in for his financial skills; he was brought in to make acquisitions. I would say that I wouldn't be surprised to see Mellon make an acquisition a month."
Mr. Bove said Mr. Kelly would use some of the proceeds from the sale of its human resources outsourcing operation to fund a deal push. That sale in May, to Affiliated Computer Services Inc. of Dallas, was for $405 million.
Craig Sutherland, who was promoted last month to vice chairman for a newly created unit to increase sales and marketing in Mellon's private wealth group, said in an interview last month that Mr. Kelly has "echoed that directional priority" since his arrival from Wachovia Corp.
Mr. Sutherland said Mellon's private wealth group plans to double its assets under management in the next five years. The group, which manages $80 billion, will increase its 55-person sales force to 75 by yearend and to more than 100 by the end of 2006, he said.
Don Heberle, the executive director for family offices and charitable gift services at Mellon, said the U.S. Trust deal added $700 million of planned-giving client assets, giving his Boston-based unit $3 billion under management and its new, market-leading position.
Denise Kazmier, a spokeswoman for U.S. Trust, said the company decided to sell its planned-giving business because Mellon "has the ability to make more substantial investments in that business than U.S. Trust, which [had] about 8% of the U.S. market." If $700 million was 8% of this market, then Mellon's $3 billion total would be roughly 34%.
State Street Corp. in Boston and Kaspick & Co. in Redwood Shores, Calif., are Mellon's two biggest competitors in this business, Mr. Heberle said.
The purchase was Mellon's fifth in the past five years. Its terms were not disclosed.
Mr. Heberle said organic growth, not deals, is the priority for his group from this point.
"We will consider any deal, but our immediate plan is to grow organically," he said. "This acquisition has put us in a market-leading position, and we want to capitalize on that."
Mellon plans to increase wallet share with the clients acquired from U.S. Trust, Mr. Heberle said. It sells investment, gift administration, donor development support, accounting, tax reporting, and other specialized services to charitable programs nationally.
Linda R. FitzPatrick, the managing director for Mellon's charitable gift services group, will manage the expanded group and will continue to report to Mr. Heberle. The deal gives Mellon charitable giving offices in Greensboro, N.C., and Portland, Ore., in addition to the Boston and San Francisco offices it already had.
Analysts said U.S. Trust decided to get out of the charitable giving business because it could not develop the scale needed to be profitable. Charles Schwab Corp., which owns U.S. Trust, announced layoff plans for administrative employees last month that included the U.S. Trust unit.
"Generally, the feeling is that the U.S. Trust acquisition hasn't gone the way that Schwab hoped," Mr. Bove said. "A processing business needs scale in order to merit staying in the business."
"Mellon has the money and the excess cash flow to grow," he said. "I expect they'll grow similar to Bank of New York. They will look to add through acquisition and add organically. I expect them to be aggressive on the acquisition front."
