When it acquired Community Banks Inc. of Harrisburg, Pa., in November, Susquehanna Bancshares Inc.’s top executive told analysts not to expect another banking deal for at least six months, but “not to be surprised” if his company bought an asset manager.
So the Lilitz, Pa., company’s announcement last week that it had agreed to acquire Plymouth investment manager Stratton Holding Co. was not eye-catching, but the executive’s prediction for growth in fee-based services was.
By expanding organically and making more deals in the Middle Atlantic, the company expects assets under management and advisement to exceed its current $13 billion of total assets within the next five years, William J. Reuter, its chairman, president, and chief executive, said in an interview Thursday. Analysts agreed this target is attainable.
“We set a goal for assets under management and assets under advisement to be larger than bank assets before we made the Community Banks deal, but our goal is still the same, even though our bank assets have jumped to $13 billion, ” Mr. Reuter said. “We want our fee-based assets to pass the bank’s assets.”
He expects the Stratton deal to close next quarter. Susquehanna then would have $9 billion of assets under management and advisement. He said even without more deasl, he expects that figure to grow 10% annually organically.
But Mr. Reuter said he would consider more acquisitions.
“We will continue to look for the right company that is the right fit for us,” he said. “Transactions are not easy to come by and every deal doesn’t necessarily fit. … But without question, if a transaction comes along that is in our footprint in the Mid-Atlantic states, we will look. We are not interested in buying an investment manager in Florida or the Midwest.”
At a time when lending revenue is shrinking at many banking companies, Mr. Reuter said he is confident Susquehanna can expand its fee-based assets. “We are already earning 35 cents on the dollar in fee income, and we think that we can get that up to 40 cents by developing our wealth management business,” he said. “We hope to reach that in two years.”
David W. Darst, an analyst with First Horizon National Corp.’s FTN Midwest Research Securities Corp. , said there are opportunities for Susquehanna to acquire. “In the Philadelphia suburbs, where Valley Forge is located, these are higher-growth areas with more affluent individuals and strong demographics,” he said. “Susquehanna tends to do well with consumers in that market.”
With its revenue stream, Susquehanna has developed stronger valuations relative to other midsize financial services companies in the region over the last several years and has become an aggressive acquirer, Mr. Darst said; this could mean more deals this year.
“Bryn Mawr Bank Corp. would be the jewel for Susquehanna,” he said. “It is on the Main Line in Philadelphia, and they were already managing money for Community Banks prior to it being acquired. It had about $900 million in bank assets and $2 billion in assets under management in its trust unit. … Bryn Mawr historically has indicated it wants to remain independent, but in this environment, with lower growth and credit concerns, more banks will be inclined to sell.” Bryn Mawr did not return calls for comment.
Susquehanna entered the asset management business in 2000, when it bought Valley Forge Asset Management Corp., which had $800 million under management at the time and now has $3 billion. Mr. Reuter said with the Valley Forge acquisition, Susquehanna realized how scalable the asset management business could be.
Mr. Reuter said the announced deal for Stratton Holdings, the parent company of Stratton Management Co., and Semper Trust Co., is consistent with Susquehanna’s strategy since 2000 of expanding its asset management business and diversifying its product mix.
Valley Forge focuses on growth at a reasonable price, but Stratton offers multicap, midcap, and small-cap portfolios. Its offerings include three proprietary funds.
Mr. Reuter said acquiring these funds does not mean Susquehanna is moving into the proprietary fund business. Like any asset manager Susquehanna has or will acquire Stratton would maintain its brand and any expansion of its fund family would be left up to its management team, he said.
“Stratton has had an excellent following of customers that includes institutions, pensions, endowments, and wealthy individuals; it is up to them to develop the right products,” he said. “We are providing them with access to a larger footprint of customers.”
