James Gorman, chief executive officer of Morgan Stanley


Michael Nagle/Bloomberg

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More consolidation and more reliance on fees. Those two Wall Street trends took the spotlight this past Thursday when

Morgan Stanley

said that it would pay $7 billion for

Eaton Vance.

The deal, coming on the heels of the Wall Street giant’s purchase of discount broker E*Trade, marks another step in its retreat from its somewhat swashbuckling pre-financial-crisis persona, when it made much of its money from risky trading. And it fits in with a wave of consolidation reshaping the money-management industry.

Combined, Morgan Stanley (ticker: MS) and Eaton Vance (EV) would generate $26 billion in annual pro forma net revenue, much of it from steady fee income for overseeing $1.2 trillion in assets and providing associated services.

Eaton Vance has a strong lineup of mutual funds offered under its own name, many focused on fixed income. It also owns the Calvert Research & Management funds, which specialize in sustainable investments; Parametric, which provides customized indexes and other tools for investors; and Atlanta Capital, a firm that invests in small- and mid-cap stocks. All could benefit from having their offerings integrated into Morgan Stanley’s powerful international distribution network. Eaton Vance is also strong in domestic distribution to intermediaries, such as financial advisors, and owns an in-house advisory firm, Eaton Vance Investment Counsel.

The acquisition is expected to close in mid-2021. For each Eaton Vance share, an investor would get 0.5833 of a Morgan Stanley share, plus $28.25 in cash. Based on Morgan Stanley’s recent stock price, this totals $56.50. Eaton Vance holders would also get a one-time special cash dividend of $4.25 per share from that company, paid before the closing.

On a conference call, CEO James Gorman expressed hope that the deal would boost Morgan Stanley’s

  • Morgan Stanley will buy asset manager Eaton Vance in a deal valued at $7 billion, the firms said on Thursday, in the latest sign of widespread consolidation in the money-management industry. 
  • The deal beefs up Morgan Stanley’s position in customizable fund offerings and sustainable investments through Eaton Vance’s affiliates, industry analysts and consultants said in interviews.
  • One East Coast-based Morgan Stanley financial advisor told us that he was most interested in the fixed-income capabilities Eaton Vance could bring to the firm, along with its Parametric mutual funds. 
  • Morgan Stanley’s move underlines its own transformation and the realities of pressured mid-sized asset managers that need size to survive. 
  • On a conference call to discuss the deal with analysts on Thursday morning, CEO James Gorman said the tie-up fit into Morgan Stanley’s shift to “more balance sheet-light, more durable businesses.”
  • Visit Business Insider’s homepage for more stories.

Sustainable investing, big stable businesses, utter size, and tailored products for investors: Morgan Stanley’s move to buy Eaton Vance at a premium is a deal made for modern Wall Street.

The New York investment bank said Thursday it would acquire the Boston-based investment manager, which oversees some $500 billion in assets, and its affiliates in a deal worth $7 billion in cash and stock.

Coming just six days after Morgan Stanley closed on its all-stock E-Trade acquisition, the deal highlights the bank’s transformation toward more stable operations from once-core sales and trading under Chief Executive James Gorman within an industry that has shifted significantly since he took the reins a decade ago.  

The tie-up would create a $1.2 trillion asset management behemoth alongside Morgan Stanley Wealth Management, one of the largest wealth managers in the world with 15,400 financial advisors and nearly $2.7 trillion in client assets as of the end of June.

Eaton Vance

Morgan Stanley


MS 0.60%

said it is buying fund manager

Eaton Vance Corp.


EV 48.14%

for $7 billion, continuing the Wall Street firm’s shift toward safer businesses like money management.

Its pivot mirrors a broader shift in power and profits on Wall Street. The trading profits of the 2000s are long gone, sapped by new regulations and shifting investor preferences. Asset management, which produces steady fees and requires little capital to run, has become a priority for banks including

Goldman Sachs Group Inc.

and

JPMorgan Chase

& Co.

Morgan Stanley is a midsize player in that space, too small to reap the cost savings of being a giant like

BlackRock Inc.

but too big to credibly style itself a boutique. By acquiring Eaton Vance, it will join the club of $1 trillion money managers and bulk up in specific products where it is weaker, such as municipal bonds and sustainable investing.

Morgan Stanley is paying $56.50 per Eaton Vance share in cash and stock, roughly 40% above the fund manager’s closing price Wednesday. Mr. Gorman has been seen as overpaying before, offering similarly large premiums to acquire E*Trade and, before that, a company called Solium that manages employee stock plans.

Morgan Stanley’s retail brokerage already is the largest distributor of Eaton Vance funds, CEO James Gorman said.



Photo:

Simon Dawson/Bloomberg News

“People who hang around trying to buy great companies cheaply never get anything done,” Mr. Gorman said Thursday. Morgan Stanley shares opened lower but ended the day slightly higher. Eaton Vance’s shares jumped nearly 50%, baking in a $4.25-a-share special dividend that was announced as part of the takeover.

In Eaton Vance, Morgan Stanley gets another midsize player in an increasingly tough business. Investors once gravitated toward the kind of funds that the Boston-based firm is known for, where

Morgan Stanley is buying Eaton Vance in a deal valued at about $7 billion

NEW YORK — Morgan Stanley is buying the investment management firm Eaton Vance in a deal valued at about $7 billion.

Eaton Vance, based in Boston, has over $500 billion in assets under management.

Morgan Stanley Chairman and CEO James P. Gorman said in a prepared statement Thursday that Eaton Vance will add more fee-based revenues to its investment banking and institutional securities franchise. The deal will give Morgan Stanley’s investment management arm approximately $1.2 trillion of assets under management and more than $5 billion of combined revenues.

Eaton Vance shareholders will receive $28.25 per share in cash and 0.5833 of Morgan Stanley common stock, or approximately $56.50 per share. Based on the $56.50 per share, the amount paid to Eaton Vance shareholders will consist of about 50% cash and 50% Morgan Stanley common stock.

Each Eaton Vance shareholder will have the option to choose all cash or all stock, subject to a proration and adjustment mechanism. Eaton Vance shareholders will also receive a one-time special cash dividend of $4.25 per share to be paid before the transaction’s closing by Eaton Vance to its shareholders from existing balance sheet resources.

The deal is expected to close in the second quarter of next year.

Shares of Eaton Vance spiked 43% before the opening bell.

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Signage is displayed at the entrance to BlackRock Inc. headquarters in New York


Jeenah Moon/Bloomberg


Deutsche Bank

upgraded BlackRock and Eaton Vance shares to a Buy, citing “powerful” demand for sustainable investing that could bring a tide of cash to the asset-management companies,

Asset growth at both firms can average “5% or better,” beating their peers, the bank said. That would allow both stocks to trade at premiums to the asset-management group, according to Deutsche analysts led by Brian Bedell.

Asset managers “have an opportunity to substantially enhance organic growth” by developing products focused on offering a positive impact in terms of ESG, or environmental, social and governance factors, Deutsche Bank wrote. Many asset managers have been embedding ESG into their investment processes, it said, but strategies specifically focused on ESG are doing far better at attracting assets.

That trend is expected to continue “given rising awareness of ESG issues globally and the greater importance younger generations place on investing for ESG impact,” the bank said. This year, growth in sustainable investing jumped as concern over climate change mounted and the Covid-19 pandemic highlighted the importance of social issues, it said.

According to one survey from Federated Hermes Investors, nearly two-thirds of respondents now consider social factors as part of their investment process.

In the past, one hurdle for ESG investing was a perception that such funds underperform relative to others, or that investing with a social purpose would violate fiduciary responsibility. That has been the position of the Labor Department, which is weighing an unpopular proposal to curb ESG options in 401(k) retirement plans.

Those concerns are unfounded, Deutsche Bank suggested, because investors don’t appear to be sacrificing performance by buying ESG funds. Funds not explicitly identified as ESG, but ranked as highly sustainable by Morningstar, also