In a move to further build its wealth management business, Baltimore-based Legg Mason Inc. said yesterday that it will buy from Deutsche Bank AG four Scudder Private Investment Counsel offices with $5.8 billion in assets under management.
Under the terms of the agreement, Legg Mason, an asset management company, will pay $55 million at closing and up to an additional $26.3 million after one year, based on the revenues of the acquired business at that time.
"We like this business," said Mark R. Fetting, president of Legg Mason Asset Management. "We just like to get bigger and even better for our clients."
Fetting said the acquisition, which is expected to close by Dec. 31, fits with Legg's investment counseling operations, such as Cincinnati-based Bartlett & Co. and Barrett Associates Inc. of New York. Those companies manage private accounts for wealthy individuals, families, endowments and institutions.
"There is more hand-holding and care to that ... process," Fetting said. "These are substantial, high net-worth individual accounts."
Eleven Scudder principals have signed five-year employment agreements with Legg, including the company's chief investment officer, portfolio managers and the managing directors of each of the four Scudder offices, the companies said.
"I see limited downside to the deal, specifically considering the pricing," said Matthew Snowling, an analyst at Friedman, Billings, Ramsey, an investment banking firm in Arlington, Va. "The pricing on this looks extremely attractive. To the extent they can fold it into the Legg model and grow it, it eventually could become a more significant contributor to the bottom line."
Snowling estimates that the deal could boost Legg's earnings by 5 cents a share next year.
Deutsche Bank has sold Scudder Private Investment Counsel offices in recent months. A company official said the transaction will not affect its Deutsche Bank Alex. Brown operations in Baltimore.
Legg's strategy has been to emphasize its asset management business. Vast sums are up for grabs internationally and domestically as baby boomers inherit money from their parents.
That shift has helped the company ride out stock market downturns because the company relies less on revenue from its brokerage business, which can fluctuate with the fortunes of the market. In the six months that ended Sept. 30, 67 percent of its revenue was generated from investment advisory fees.
Although the Scudder purchase is a relatively small transaction, Legg hasn't been shy about making large, strategic acquisitions to bolster its position.
In 2001, Legg acquired Private Capital Management LP, a top-performing Florida money-management firm, for a sum that could total $1.4 billion once all payments are made.
The same year, it bought Royce & Associates Inc., a New York company known for running high-performing funds that invest in small companies, for $215 million.
Royce's assets under management have more than tripled, to about $18 billion, since Legg bought the company. Private Capital's assets have nearly tripled, to $25 billion.
