Continuing its move out of the financial crisis and into consolidation mode, State Street Corp. said Tuesday that it had agreed to buy a European fund administrator to expand its alternative servicing capabilities.
The Boston banking company said it would buy Mourant International Finance Administration, which is based on Jersey in Britain's Channel Islands, for an undisclosed cash price. The deal is expected to close in the first quarter and would add $170 billion of assets under administration and about 650 employees.
Mourant specializes in fund administration services for alternative investments, such as private equity, real estate and hedge funds. Jack Klinck, executive vice president and global head of State Street's alternative investment solutions team, said that the deal will give State Street just under $600 billion in alternative assets under administration and thus the largest global market share.
Currently, State Street trails Citco Fund Services Inc., a unit of Citco Group Ltd., which had $585 billion in alternative assets under administration at Sept. 30.
International expansion through acquisition has been part of State Street's strategy for the past three years under Ronald Logue, its chairman and chief executive officer. Logue, who announced in October that he would retire in March, has said that he wants the company to be able to generate 50% of its revenue from international channels.
"Over 90% of Mourant's revenue is non-U.S.," Klinck said. "I mean, when you think about Ron talking about geographic expansion and acquiring capabilities to integrate into the franchise, this ticks all the boxes."
Marty Mosby of First Horizon National Corp.'s FTN Equity Capital Markets said the deal is in line with State Street's strategy to expand its asset base both domestically and globally. "Acquisition and consolidation will be a big part of the growth of financial institutions in the next three to five years, but State Street is a bit ahead of the game because they have been able to get the downturn behind them sooner," he said. "The timing is right for them because they are already moving into consolidation rather than dealing with financial problems like some of their competitors."
Analysts said the largest trust banks — Northern Trust Corp., State Street, and Bank of New York Mellon Corp. — avoided the worst of the financial crisis by relying on asset servicing and management and can begin to acquire sooner. In August, for example, Bank of New York Mellon announced a deal to buy Insight Investment Management Ltd. for $387 million from Lloyds Banking Group PLC. The deal, which is expected to close this month, would add $131.9 billion of assets under management at Bank of New York Mellon.
Analysts said more banking companies and other wealth managers would begin buying next year, though slowly. "Companies have to emerge from the overhang of financial stress before they can begin to consider expansion," Mosby said. "State Street is already down that path, so they can look for positive strategic moves."
Klinck said State Street wants to close this deal, which it expects to be accretive to earnings, before doing another. "We don't want to be too far over our skis," he said. "We want to be focused on retaining employees and clients. I mean, State Street is a big company with a lot of resources, and we can handle multiple acquisitions at one time, so I wouldn't rule anything out, but for the time being, we want to put our attention on this deal before we go right back out again."
State Street has expanded its capabilities in the alternative asset servicing segment of the global fund administration business during the last seven years. In 2002, it bought International Fund Services and, in 2007, Investors Financial Services Corp. and Palmeri Fund Administrators.
When the Mourant deal closes, Klinck said, opportunities will arise to cross-sell State Street's custody services to Mourant's customers, who generally do not overlap with State Street's existing clients.
State Street already has a small presence in the Channel Islands, Klinck said, but most of its alternative asset servicing employees are in Luxembourg, the Cayman Islands or Dublin. "We had a few dozen people in Guernsey and Jersey, and they have 400," he said. "We are adding some pretty significant scale with this deal. We are now clearly No. 1 in the Channel Islands, and that rounds out a powerhouse offering for all of the most prominent domiciles."
