Yet another acquisition took place as Legg Mason announced a purchase of over $1 billion in deals on Friday.
The purchases came as the Baltimore capital management firm makes an effort to put itself into a more diversified position, something we’re seeing as a trend since the turn of the century. Likely the move is to reflect investor interest in actively managed mutual funds wanes, and appetite for new alternatives increases.
Joseph A. Sullivan who is the CEO of Legg Mason said that evolution in an asset management firm is a requirement in a presentation Friday to the respective investors in NY.
The biggest move came from a massive stake in the NYC-based Clarion Partners which approached $585 million for a total of 83 percent of the company. Clarion is a real estate investment firm which focuses on diversity and works with $40 billion.
An additional move was the merging of NYC-based EnTrust Capital, an alternative investment hedge fund and Permal, it’s major platform hedge fund. The new company, named EnTrustPermal will have 65% of it owned by Legg. The remaining 35% will be owned by Gregg Hymowitz, founder and CEO of EnTrust Capital.
A third move to encompass the firm’s approach to new investment strategies, was to acquire 19.9% of Precidian Investments. This company creates products such as exchange-traded funds and the platforms to operate them. The acquisition coincides with Legg’s first ETF which was created in the fall.
These acquisitions were released with Legg’s earnings for the last quarter of 2015. With a loss of $1.31 per share, the stock dropped down 1.8%.
These seems to echo many other earnings releases which are not surprising, but are hurt with a market reaction.
While Citi said the earnings and market reaction were understandable, Bank of America analysts showed a little less enthusiasm about the deals.
An assistant professor, Yuval Bar-Or, of Johns Hopkins Carey Business School indicated the acquisitions could be a risk. He explained that multiple acquisitions in short succession can cause a company to be spread thin, erupt in culture clashes, and paramount personnel could leave due to conflicts. This all was summed in the word uncertainty for Bar-Or.
Inversely, the move could be enticing for investors who are worrying about a tumultuous 2016 said Karyl Leggio, who is a professor of finance in Loyola University Maryland.
Together the acquisition seems to bode for a future extreme move, but the direction will count on management’s ability to synthesize a synergistic outcome.