For the first time in its 100-year history, Legg Mason Inc. agreed yesterday to buy an overseas mutual fund company.
Legg Mason is paying $70 million for London-based Johnson Fry Holdings PLC. While the deal is small monetarily, it signifies an important shift for the Baltimore-based brokerage and asset management company, which is looking to expand globally, to follow the burgeoning world retirement market.
Legg Mason Chairman and Chief Executive Officer Raymond A. "Chip" Mason's "whole theme now is to follow the 401(k) trail as it develops around the world," said Lisa Spector, a senior vice president at Legg Mason, who headed the team that put together the Johnson Fry deal. "To an extent that market is building around the world, we want to be there."
Spector said the United Kingdom is among the biggest mutual fund markets outside the United States.
Cerulli Associates Inc., a Boston-based company that tracks mutual fund assets, expects mutual fund assets in Europe to swell to more than $4 trillion over the next two years, from $2.25 trillion last year, according to Bloomberg News.
Spector said Legg Mason wants to tap that booming retirement market, and it is looking for more overseas companies to buy.
The Johnson Fry deal is modest, but Michael Flanagan, a brokerage analyst at Philadelphia-based Financial Service Analytics, said it could have much "larger potential" for the firm. "As the business becomes increasingly global, it is much easier for Legg Mason to use its beachhead in mutual funds to expand, especially in Europe where there is seemingly much more opportunity than in the U.S," Flanagan said.
Johnson Fry gives Legg Mason a toehold in the United Kingdom with 83,000 customers and $2 billion in assets under management -- a fraction of Legg Mason's $95 billion in assets under management.
While Johnson Fry offers only eight "unit trusts," or mutual funds, they have performed well.
"They were the No. 1 fund manager in the U. K. among small fund groups," Spector said.
But the firm has lost money, largely because it operated several under-performing businesses, such as health insurance, property management and corporate finance. It sold these businesses to focus on mutual funds, and brought in a new team of managers to run the company.
"We would not be interested in them at all if we did not like their managers," Spector said. "They are very young. It is a new management team that has come in the last one, two, three years."
Mason, who was in London and could not be reached for comment, said in a company statement that the acquisition represents an "important step in our strategic goal of providing fund management services to support the long-term savings needs of individual investors around the world."
David Backhouse, chairman of Johnson Fry, said in a statement that the deal will give the firm resources to develop its mutual fund business more quickly.
The Johnson Fry transaction is Legg Mason's third deal in two months. The company is building its asset management business both overseas and among wealthy individuals.
Last month, the firm bought Wilkes-Barre, Pa.-based Berkshire Asset Management Inc., which manages about $600 million for institutions and wealthy individuals. Two weeks ago, it paid an undisclosed amount for a 50 percent stake in a trust company owned by Bingham Dana LLP, a large law firm in Boston. The trust company manages $1.3 billion in assets for clients of the law firm.
Flanagan expects more acquisitions from Legg Mason. "They have been extremely busy," he said.