Morgan Stanley has acquired Canadian stock plans administrator Solium Capital for $900m as it positions itself as a leading wealth manager for future millennial millionaires.
The deal comes just days after the $66bn merger of US banks BB&T and SunTrust marked the biggest post-crisis US bank M&A, suggesting a revival of dealmaking in the banking sector after years of caution.
The Solium deal — which was struck at a 43 per cent premium to Friday’s closing price — gives Morgan Stanley access to technology that Solium has developed. Technology has become a familiar theme in the limited volume of M&A deals involving banks in the past few years, in which big firms prioritised acquisition of fintechs that can help banks stay ahead of the curve.
Morgan Stanley will also get over 1m employee-clients to add to its existing stock management business, which comprises 320 stock plan clients with 1.5m participants.
“The acquisition provides Morgan Stanley with broader access to corporate clients and a direct channel to their employees,” said the bank’s chief executive, James Gorman, who noted the opportunity to “develop relationships with a younger demographic and service this population early in their wealth accumulation years”.
Analysts at Evercore said that while the price tag “might raise a brow”, the deal “makes significant strategic sense” as it “provides a real path towards the organic growth and next generation of clients that many investors have been questioning”.
Solium manages the equity plans of employees of more than 3,000 companies, including many start-ups that tend to hire younger workers, who often receive a large portion of their pay in stock in hopes of earning a big return when their employer goes public.
Clients include start-ups such as grocery app Instacart, e-commerce group Shopify and fintech payments company Stripe.
“The primary target is obviously to cross-sell and retain as many retirees as possible in the Morgan Stanley financial-advisory [wealth management] business,” said Guy Moszkowski, banks analyst at Autonomous.
“Presumably a secondary, more speculative opportunity might be to turn some of those growth-company relationships into IPO mandates for Morgan Stanley’s investment bankers.”
Morgan Stanley is in a race with rival Goldman Sachs on public offering mandates, as some of the largest privately held tech companies — including ride hailing apps Uber and Lyft, as well as social media network Pinterest — ready long-awaited floats.
Morgan Stanley has grown into the third biggest wealth manager in the world based on assets under management. The bank purchased Smith Barney from Citigroup in a hard fought 2012 deal that valued the wealth management unit at $13.5bn.
Mr Moszkowski said the bank had previously signalled that they are interested in deals in the area of asset management, and Solium is a “sensible plug-in” rather than a “bet-the-ranch” transaction.
“It of course doesn’t preclude something that’s bigger than $1bn — MS is after all a very large company — but I wouldn’t expect anything that dramatically changes the profile of the firm, either financially or strategically,” Mr Moszkowski said.
Under the terms of the deal, Morgan Stanley will pay C$19.15 ($14.42) a share for Solium, versus Friday’s closing price of C$13.36.
Davis Polk & Wardwell and Osler, Hoskin & Harcourt are providing legal advice to Morgan Stanley in connection with the transaction.
Additional reporting by Pan Kwan Yuk in New York
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