Legg Mason Inc., continuing a push to augment its asset management business, yesterday announced an acquisition that will raise the Baltimore-based investment banking firm's assets under management to more than $31 billion.
Under an agreement signed late yesterday with Cincinnati-based Bartlett & Co., Legg Mason will issue 1.25 million new shares of common stock to complete the purchase. Based on Legg Mason's closing stock price yesterday, those shares would be valued at $36.7 million. The new common stock is equivalent to 9 percent of Legg Mason's outstanding shares.
"We feel this will be the fastest growing area of the financial marketplace, likely to grow even faster than mutual funds or 401 (k) funds," said Edward A. Taber III, a Legg Mason senior executive vice president.
The Bartlett purchase marks the first for Legg Mason since February, when it completed the acquisition of Batterymarch Financial Management Corp., a Boston-based money manager with $5.7 billion in assets under management. As part of that transaction, Legg Mason agreed to pay $54 million in cash and up to $120 million, based on achieving certain future criteria.
In all, Bartlett becomes the fifth asset management acquisition by Legg Mason since it entered the business in April 1982. Its other purchases involved Western Asset Management of Los Angeles; the Fairfield Group of Pennsylvania; Gray, Siefert & Co. of New York; and Batterymarch.
Mr. Taber said Legg Mason is exploring several other similar purchases, although he declined to reveal either company names of geographic targets.
Although Bartlett's size relative to Batterymarch is small, Legg Mason considered its $2.3 billion in assets under management to be attractive because much of that total is focused in accounts for high net worth individuals and families.
"The high net worth market is large, unpenetrated, completely fragmented and growing quite rapidly, in part due to the popularity and success of stock-option programs," Bernstein Research wrote in the most recent edition of "The Future of Money Management In America."
The report also noted that the segment is growing: Since 1983, the number of individuals with $1 million or more in personal net worth has nearly tripled.
Bartlett, founded in Ohio in 1898, also controls five mutual funds valued at roughly $400 million. With the addition of the mutual funds, Legg Mason and its subsidiaries will control two dozen mutual funds.
"We feel they have made their reputation and are the premier firm in private client services," Mr. Taber said.
Although Mr. Taber declined to provide a projected yield from the Bartlett purchase, it is expected to generate in excess of $2.56 per share on an annualized basis on the 1.25 million shares of stock issued. At that rate, the internal dividend would be higher than Legg Mason's annual earnings per share.
Following the deal's closing, which is expected in early January, Bartlett will become a wholly owned subsidiary of Legg Mason.