State Street Corporation has agreed to acquire the investor services business of Brown Brothers Harriman & Co. (BBH) for US$3.5 billion in cash. The agreement will include BBH’s custody, accounting, fund administration, global markets and technology services.
State Street says the acquisition should advance its strategy as a provider of enterprise outsourcing solutions by creating the world’s number one asset servicer, strengthening its competitive positioning, expanding its geographic reach and improving the customer experience.
The company says the deal aligns with its goal to expand and deepen its presence in key non-U.S. markets, including developed markets such as Japan, Luxembourg and Ireland, as well as the Latin America.
BBH Investor Services is a global asset manager with an exceptional client service track record and deep expertise in cross-border, alternative, exchange-traded funds and other high-growth asset classes. As of June 30, 2021, the company had US$5.4 trillion in Assets Under Custody (AUC), adding to State Street’s US$31.9 trillion AUC. (Assets in custody and/or administration for State Street were US$42.6 trillion.)
Following the transaction, BBH will continue to independently own and operate its separate private banking and investment management businesses.
The parties aim to complete the acquisition by the end of this year, subject to regulatory approvals and customary closing conditions.
Commenting on the acquisition, State Street Chairman and CEO Ron O’Hanley said, “The investment services industry benefits from strong fundamentals as global growth in financial assets drives industry revenue. This combination with BBH Investor Services helps us solidify our position as an innovator and industry leader.
“We are strengthening our leadership position in a range of services, strengthening our position in a number of key markets, developing relationships with many leading global asset managers and owners, and increasing our capabilities and scale. In addition, BBH Investor Services brings us strong talent, including industry-leading service excellence and quality execution.
Bill Tyree, Managing Partner of BBH, adds: “We made this decision after careful consideration of the current and future landscape of the global securities services industry, including how best to support and innovate for the scope and complexity of our customers’ service needs. State Street is the perfect partner – a company that shares our core values of unparalleled customer service, integrity, trust and a long-term commitment to sustainability.
Upon closing of the transaction, BBH Investor Services employees will relocate to State Street. The leadership team will transition to State Street in leadership roles.
Seán Páircéir, currently Partner and Global Head of Investor Services at BBH, will join State Street’s Management Committee.
Due to the expected earnings growth from the transaction, State Street is now targeting a 31% pretax margin increase. State Street also expects $260 million in expense synergies by the third year of the acquisition through efficiencies in operational systems and infrastructure, as well as expense consolidation. generals. The company has also identified approximately US$35 million of Ebit (earnings before interest and tax) from known balance sheet actions and US$40 million of Ebit from estimated net revenue synergies in services. investment and global markets by the third year.
The transaction will be primarily funded by the issuance of common shares, the suspension of common share repurchases with resumption in the second quarter of 2022 and available cash. The acquisition should be accretive to earnings per share in the first year.
State Street says leveraging each company’s best technologies and capabilities will enhance its current set of product solutions for new and existing customers. BBH Investor Services brings innovative data connectivity tools to the Broad Market that will complement State Street’s suite of products and provides a toolset that represents a significant enhancement to its service offering.
BBH Investor Services’ Infomediary platform, which facilitates the transmission and integration of data between buy-side and sell-side systems, is expected to support State Street’s Alpha platform and facilitate client onboarding on the platform while mitigating future development costs. The addition of BBH Investor Services’ top client list will also expand Alpha’s potential user base, State Street says.
Goldman Sachs served as financial advisor and Davis Polk & Wardwell served as legal advisor to State Street on the transaction. Lazard served as financial advisor and Sullivan & Cromwell served as legal advisor to BBH.