By Alexander Bergmüller & Friedrich von Storch (IE Business School), and Mariona Planella Boix (ESADE Business School)
Overview of the deal
Acquirer: Morgan Stanley
Target: Eaton Vance Corp.
Implied Equity Value: $7 billion
Announced date: October 8th, 2020
Closing date of the deal: Q2 2021
On October 8th, Morgan Stanley has announced the acquisition of the investment management company Eaton Vance for $7bn, paid in cash and shares. After this deal, Morgan Stanley will oversee $4.4 trillion of client assets and AUM across Wealth Management and Investment Management segments, doubling its Investment Management business to a size of $1.2 trillion. This deal represents the next step in Morgan Stanley’s strategic transformation to safer businesses after it closed a $13bn deal to buy online brokerage E-Trade some weeks ago and after its $900m acquisition of employee stock plans manager Solium less than two years ago. As a result of the deal, Eaton Vance’s shareholder will receive $28.25 per share in cash and 0.5833x of Morgan Stanley common stock. The deal has a clear underlying strategic rationale, aiming towards better positioning the bank to compete against passive fund houses such as BlackRock and Vanguard, as well as the asset management arms of rival banks JPMorgan and Goldman Sachs.
“Eaton Vance is a perfect fit for Morgan Stanley. The deal provides quality, scale and the value-added fixed income business and enhances our client reach” - Morgan Stanley CEO and chairman James Gorman
Company Details: Acquirer – Morgan Stanley
Morgan Stanley is a financial holding company that provides various financial products and services to corporations, governments, financial institutions, and individuals in the Americas, Europe, the Middle East, Africa, and Asia. The company operates through Institutional Securities, Wealth Management, and Investment Management divisions. The Investment Management unit provides various investment strategies and products comprising equity, fixed income, liquidity, and alternative/other products to benefit/defined contribution plans, foundations, endowments, government entities, sovereign wealth funds, insurance companies, and third-party fund sponsors and corporations through a network of institutional and intermediary channels.
Founded in 1924, headquartered in New York, USA
CEO and Chairman: James Patrick Gorman
Number of employees: 61,600
Market Cap: $88.60 billion (as of October 9th, 2020)
EV: $197.64 billion
LTM Revenue: $ 43.79 billion
LTM EBITDA: N/A
LTM EV/Revenue: 11.2x
LTM EV/EBITDA: N/A
Company Details: Target - Eaton Vance
Eaton Vance Corp. engages in the management of investment funds and provides counselling services. It offers a range of engineered portfolio implementation services, including tax-managed core and specialty index strategies, futures and options-based portfolio overlays, and centralized portfolio management of multi-manager portfolios.
Founded in 1924, headquartered in Boston, Massachusetts, USA
CEO: Thomas E. Faust Jr.
Number of employees: 1.870
Market Cap: $6.953 billion (as of October 9th, 2020)
EV: $8.352 billion
LTM Revenue: $1.71 billion
LTM EBITDA: $610 million
LTM EV/Revenue: 4.1x
LTM EV/EBITDA: 12.6x
Projections and Assumptions
In an industry that is increasingly driven by scale and, as a consequence, has seen a wave of mergers directed to cutting costs and improving margins, the transaction will see Morgan Stanley’s investment management business grow significantly, doubling its assets under management to $1.2 trillion and revenue to $5 billion. As a result, the bank will be able to strengthen its position in the sector and fight-off the fierce competition from global players such as passive fund giants Blackrock and Vanguard, as well as the asset management divisions of rivals Goldman Sachs and JPMorgan.