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Federated Closes Purchase of Mutual Funds Worth $14B From PNC

Zacks Equity Research

Federated Investors Inc. FII completed the acquisition of certain components of PNC Capital Advisors LLC's (PCA) investment-management business for $56 million on Tuesday. Notably, Federated had signed the deal with PNC Financial PNC to acquire the funds earlier this May.

Per the agreement, liquidity, equity and fixed-income mutual funds of PNC Financial were reorganized into respective Federated mutual funds. Further, a portion of PNC Financial's separate account and separately-managed account business was transitioned into Federated, along with a five-person Cleveland-based international equity portfolio management team. Increased assets under management furnished Federated with various new fund offerings that would benefit its clients.

Terms of the Deal

Per the deal, Federated, one of the largest investment managers, reorganized 18 PNC equity, fixed-income and liquidity mutual funds into 16 respective Federated mutual funds.

Assets worth $14 billion were reorganized on approval by PNC fund shareholders, included $11.3 billion in liquidity assets, $2.3 billion in equity assets and $450 million in fixed-income assets. Remarkably, the acquired assets to be merged into Federated’s existing funds possess similar investment objectives.

For quite some time, Federated has been working with different banks to provide investment products catering to client needs. Therefore, the company’s experience, along with its proficiency in providing customer service, will be opportunistic for PNC Financial funds’ shareholders. Moreover, the deal’s completion will enable the shareholders to access a wider array of investment products. Federated is looking forward to many such opportunities, in order to provide the best services to its clients.

"This transaction builds upon Federated's long-term relationship with PNC and provides the shareholders of the funds and other PNC customers access to Federated's diverse range of investment strategies, proven performance and extensive customer service capabilities. Federated continues to seek alliance and acquisition opportunities in the U.S. and throughout the world," said J. Christopher Donahue, president and chief executive officer of Federated Investors. "We also are pleased to offer the strong historical performance of the international funds to our customers as complements to our existing range of international equity options," Donahue further added.

Our Viewpoint

Federated’s strategic deals in a bid to fortify its performance look encouraging. Under the prevailing pressure in the industry due to stringent regulations and competition, acquisition of investment-management assets suggests the company’s buoyancy in the money-market funds business.

Notably, the aforementioned transaction comes after Federated concluded the deal with BT Pension Scheme (BTPS) in July 2018, per which the company has acquired majority interest in London-based Hermes Fund Managers Limited — operating as Hermes Investment Management — a pioneer of integrated ESG investing. The deal was funded through a combination of cash and revolving credit facility by Federated. The company has acquired 60% stake in Hermes from BTPS for £246 million (about $350 million).

Federated currently carries a Zacks Rank #2 (Buy). Shares of Federated have gained around 11.1% in the past six months as against the industry’s decline of 3.6%.

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The PNC Financial Services Group, Inc (PNC) : Free Stock Analysis Report
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