Legg Mason Inc. agreed yesterday to buy a Boston investment manager for up to $120 million, giving the Baltimore company an important entree to the international equity markets.
The deal to acquire Batterymarch Financial Management Corp. also would allow Legg Mason to expand for the first time beyond its portfolio of domestic equity investments. Assuming the merger is completed in the next few weeks, as expected, the company expects to launch its first international mutual fund within two months.
"With this transaction, we will achieve our stated goal of being a ++ global investment manager," Raymond A. Mason, Legg Mason's chairman and chief executive, said in a statement. About two-thirds of Batterymarch's $5.7 billion under management is invested in global and emerging markets accounts.
Legg said it will pay at least $60 million in cash for Batterymarch. But that payment could rise to $120 million if Batterymarch meets certain revenue targets by the end of 1997.
The company first disclosed last month that it was talking with Batterymarch. Under the deal reached yesterday, if a contingent payment is required, Legg has the right to use its own stock to pay any amount above $40 million.
Batterymarch, which employs 53 people, will become a subsidiary of Legg Mason, whose assets under management will rise to $23 billion once the deal is done. Batterymarch Chief Executive Officer Tania Zouikin and founder Dean LeBaron will remain in the unit's top positions and operate it independently.
"Three years ago, with the appointment of Tania Zouikin as CEO, we began to transform Batterymarch from a personality-dominated firm to one with enduring, high-quality institutional characteristics," Mr. LeBaron said in a statement.
"This alliance solidifies that transition."
Batterymarch has annualized revenues of about $30 million. Legg would not disclose the Boston company's earnings and would not comment on an earlier report that estimated pretax profits at $10 million.
Legg, with 2,652 employees in 88 offices, earned $36 million on almost $400 million in revenues in its latest fiscal year, which ended March 31. The company, which provides investment banking and brokerage services, currently runs 13 domestic mutual funds and a global bond fund.
The companies did not disclose the revenue targets that would trigger a contingent payment to Batterymarch in 1998, though Legg Executive Vice President Edward A. Taber III called them "ambitious."
"If they hit it so they earn the full $60 million at the end of '97, we'll look back and say this was truly a successful venture," Mr. Taber said.
In the short-term, Legg will benefit by entering the international arena for the first time.
"Batterymarch's experience in the management of equity securities in developed and emerging markets will allow us to offer a broader array of products to our clients, and bring us the global investment management representation needed to remain competitive," Mr. Mason said.
The planned Legg Mason International Fund, which could be launched by the first of next year, will use Batterymarch's expertise to invest about 65 percent to 70 percent of the new fund's assets in major developing countries, and the rest in emerging markets, Mr. Taber said.
"The big hole in our product line, and one of the first things I wanted to do when I came over here [in 1992], was develop an international equity line," he said. "It has been a very good selling area for the nonproprietary funds that we distribute, such as Templeton and Putnam and so forth."
Soon to follow the international fund, he said, would likely be a handful of closed-end funds investing in single countries, or multicountry regions.
Batterymarch already manages for its own clients closed-end funds that invest in China, Latin America, and countries such as India and Pakistan.
Closed-end funds, unlike other mutual funds, have a limited number of shares, which trade publicly like other stocks. They do not issue new shares to meet rising demand, like open-end mutual funds.