- Morgan Stanley agreed Thursday to buy investment management firm Eaton Vance for about $7 billion, the bank said in a statement.
- The deal marks Morgan Stanley's second multibillion-dollar acquisition this year. The bank's $13 billion purchase of E*Trade, announced in February, was approved by the Federal Reserve little more than a week ago.
- The deal is expected to nearly double Morgan Stanley's assets under management — from $665 billion as of June 30, to $1.2 trillion, according to Reuters. The bank expects combined annual revenue of about $5 billion, compared with $3.8 billion last year.
Morgan Stanley CEO James Gorman had said in 2018 he aimed to double the size of his bank's investment division in the next five to seven years. In buying Eaton Vance, he pushes Morgan Stanley's assets under management past the $1 trillion mark.
Gorman said in June at a virtual conference the bank hosted that he’d be willing to make deals to get Morgan Stanley to that “sweet spot.”
But he hedged, saying the mergers and acquisitions market was “basically dead” for the second half of 2020, adding he’d be reluctant to take on a large-scale acquisition in the asset-management industry.
“Doesn’t mean there’s a zero chance, but certainly my bar and the board’s bar on that is much higher,” he said.
Under the deal announced Thursday, which is slated to close in the second quarter of 2021, Eaton Vance shareholders will receive $56.50 a share in cash and stock. That's a 38% premium over the fund manager's Wednesday closing price, and breaks down to $28.25 a share in cash and 0.5833 shares of Morgan Stanley.
Warding off speculation that he may have overpaid, Gorman told The Wall Street Journal, "People who are hanging around trying to buy great companies cheaply never get anything done.”
Eaton Vance brings about $500 billion in assets to the investment bank and bulks up its asset management arm — the smallest of Morgan Stanley's four businesses, accounting for 10% of its revenue, the Journal reported.
"Asset management has been an unsung hero inside Camp Morgan Stanley," Gorman told Bloomberg. "We felt it was in a position to do something, and this was a natural evolution."
Investment banks generally seek out asset management because it produces steady fees and requires little capital to run. But Gorman said there's limited overlap between Eaton Vance and Morgan Stanley, which should help with integration.
“Many asset managers are merging simply to get scale [...] with that comes a lot of friction,” he told the Financial Times. The Eaton Vance deal, he said, "provides quality, scale and the value-added fixed-income business — it enhances our client reach.
Gorman told The Wall Street Journal that Eaton Vance’s CEO, Tom Faust, approached him a few months ago but Morgan Stanley needed to complete its takeover of E*Trade first.
“If we didn’t do this, someone else would have,” Gorman said.
However, Gorman said market watchers shouldn't expect any more deals from Morgan Stanley in the immediate future.
"We've just done two significant transactions. We need to absorb these businesses for the next several years," he told Bloomberg. "We are not about to make another announcement in four weeks or four months."
Morgan Stanley expects to realize $150 million in annual savings through the transaction, according to Reuters.