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Franklin Resources (BEN) Completes Lexington Partners Buyout

·4 min read

Franklin Resources, Inc. BEN recently announced that the acquisition of Lexington Partners L.P. is complete. When the acquisition was announced in November 2021, the transaction was valued at $1.75 billion in a cash deal, of which $750 million was expected to be paid over the next three years.

Lexington is a leading global manager of secondary private equity and co-investment funds. The company has its presence in the United States, Europe, Latin America, and the Asia-Pacific region, and has partnered with 34 companies. Hence, the acquisition will strengthen Franklin’s foothold in these regions.

The deal has helped Franklin significantly boost its alternative asset offerings by adding more than $200 billion in aggregate alternative assets under management (“AUM”). Also, the strategic acquisition fulfills Franklin’s priority of growing its share in private markets business as investors are allocating more capital across the full spectrum of alternative investment offerings.

At the time of announcement, the acquisition was expected to be immediately accretive to Franklin's earnings per share. The transaction also provides long-term capital to BEN. The company anticipates the deal to increase management fees and drive its revenues by approximately $350 million, and earnings before interest, tax, depreciation and amortization by $150 million, in the current year.

The cash deal reflects the strong liquidity position of Franklin. Pro forma cash and investments are expected to be in excess of $6 billion post acquisition.

Other than Lexington, the company’s acquisitions of specialist investment managers like Clarion Partners, K2 Advisors and Benefit Street Partners have strengthened its investment capabilities in private debt, real estate, hedge funds and private equity, respectively.

The company has grown inorganically in the past as well. In December 2021, Franklin acquired O’Shaughnessy Asset Management, LLC, which further enhances its presence in the separately managed accounts space. In July 2020, the company completed the acquisition of Legg Mason and its specialist investment managers. Further, in May 2020, it acquired AdvisorEngine Inc., while in March, Franklin’s wholly-owned subsidiary acquired Athena Capital Advisors, LLC. Such strategic acquisitions by the company, focused on expanding its presence, are impressive.

Over the past year, shares of BEN have declined 7.8% against 11.4% decline of the industry.

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Franklin currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Inorganic moves by other companies

The Goldman Sachs Group, Inc. GS, in March 2022, announced that its asset management segment entered an agreement to acquire robo-advisor, NextCapital Group.

NextCapital currently has about $220 billion in assets under supervision. The company is a digital retirement advice provider that partners with financial institutions across the United States to deliver tailor-made, customizable retirement planning and managed accounts through workplace retirement plans and individual retirement accounts.

AllianceBernstein Holding L.P. AB announced in March 2022 that it would acquire CarVal Investors L.P., a global private alternatives investment manager with $14.3 billion in AUM.

AB will acquire CarVal for an upfront purchase price of $750 million, along with a multi-year earnout if specific targets are reached. The transaction is expected to close in second-quarter 2022, subject to customary regulatory and closing conditions, post which CarVal will become a wholly-owned subsidiary of AllianceBernstein L.P. and will be rebranded as AB CarVal Investors.

The Carlyle Group Inc. CG, through its newly-formed insurance advisor, Carlyle Insurance Solutions Management L.L.C, has struck a new advisory agreement with reinsurer Fortitude Re. This will advance CG’s Insurance Solutions strategy and offer the company leadership in the insurance industry space.

Per the agreement, Carlyle will provide Fortitude Re with merger and acquisition, transaction origination and execution, capital management services, as well as other growth opportunities. For these services, Carlyle will be paid a fee based on Fortitude Re’s general account assets and overall profitability.

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