Morgan Stanley to Purchase Eaton Vance for About $7 Billion
(Bloomberg) — Morgan Stanley agreed to purchase Eaton Vance Corp. for about $7 billion in Chief Executive Officer James Gorman’s second major acquisition this year, both of which tilt the investment bank further toward the steadier business of money management.
Gorman has become the most prolific dealmaker on Wall Street in the past three years, using acquisitions to transform his bank. Just days after completing the purchase of E*Trade Financial Corp., Gorman is bulking up his smallest division, which has lagged behind that of rival Goldman Sachs Group Inc. Eaton Vance’s recent success is in part due to its Parametric business of index-tracking custom portfolios, which has nearly $300 billion in assets.
“Asset management has been an unsung hero inside Camp Morgan Stanley,” Gorman said in an interview. “We felt it was in a position to do something, and this was a natural evolution.”
The E*Trade takeover was the industry’s biggest since the financial crisis saddled banks with regulations that hobbled some of their signature businesses. For much of the past decade, Gorman spent his time at the helm turning the bank into a major wealth-management player and shifting it away from its reliance on its trading and investment-banking operations. The latest acquisitions come at a time when those core Wall Street operations are minting money.
“It’s a happy coincidence. It gives everyone a skip in their step,” Gorman said. Don’t expect another big takeover by Morgan Stanley anytime soon, he said. “We’ve just done two significant transactions. We need to absorb these businesses for the next several years. We are not about to make another announcement in four weeks or four months.”
Eaton Vance shares surged 48% to $60.43 at 10:35 a.m. in New York, more than the deal price and the highest since January 2018. Morgan Stanley rose 1.1% to $49.24.
What Bloomberg Intelligence Says
“A 38% premium for the stock, trading above the peer median multiple at the time of the deal, looks full price at first glance.”
— Alison Williams, banks senior industry analyst
In trying to absorb an asset manager like Eaton Vance, the Wall Street firm is aiming to bulk up in a business whose lure of steady fees and low capital charges has attracted many big banks.
Eaton Vance shareholders will receive a total cash-and-stock consideration of about $56.50 a share, split between $28.25 a share in cash and 0.5833 shares of Morgan Stanley, the bank said in a statement Thursday.
After the acquisition, Morgan Stanley Investment Management will have about $1.2 trillion under management and more than $5 billion in revenue. The purchase is expected to be completed in the second quarter of next year.
While the shift to cheaper passive funds has weighed on many asset managers, Eaton Vance has leaned on fixed-income and customized portfolio offerings to generate consistent inflows. Its Parametric business offers direct indexing, a blend of active and passive investing that has gotten increased investor attention.
The asset-management industry has been under pressure to consolidate further. Nelson Peltz’s Trian Fund Management LP built up stakes in Invesco Ltd. and Janus Henderson Group Plc as the activist firm rallies for mergers in the industry.
Gorman said two years ago that he wanted his asset management unit to hit $1 trillion in client assets in coming years. The firm had long held that it could achieve significant growth without a big deal, but struggled to deliver. In 2014, Greg Fleming, who oversaw the unit at the time, said reaching $500 billion by the end of 2016 was achievable. The bank finally hit that mark last year.
Morgan Stanley had more than $600 billion in assets under management in 2008. After the financial crisis, the bank sold its retail asset-management business, which included Van Kampen Investments, acquired in 1996. “In hindsight, I’m not sure that was a great idea,” Gorman said in a 2018 Bloomberg Markets interview.