Franklin Templeton-Putnam Deal: A Merger Of Investment Giants

Franklin Templeton is buying Putnam Investments for $925 million, with the deal expected to close in the fourth quarter. The acquisition is part of a strategic partnership with Power Corporation of Canada, the parent company of Putnam's owner, Great-West Lifeco. The deal will see Great-West become a long-term strategic shareholder in Franklin Resources, with a 6.2% stake. Putnam, an active asset management firm with $136 billion in assets under management, will help Franklin Templeton boost its retirement and insurance products.

Franklin Templeton's $925 million deal

Franklin Templeton, a global investment management firm, acquired Putnam Investments in a deal worth $925 million. The acquisition was announced in May 2023 and completed in January 2024.

The deal saw Franklin Templeton, operating as Franklin Resources Inc., pay up to $1.3 billion in stock and cash for Putnam Investments. This included an upfront payment of $825 million in stock and $100 million in cash.

The acquisition expanded Franklin Templeton's business in alternatives and retirement plans, positioning the firm as a leading player in the asset management industry. Putnam, a global money management firm based in Boston, had managed $170 billion in assets as of January 2024, with a strong focus on the retirement sector. This addition significantly grew Franklin Templeton's presence in this area, particularly in defined contribution plan assets, which totalled approximately $90 billion after the deal.

The deal also included a long-term strategic partnership between Franklin Templeton and Great-West Lifeco, Putnam's parent company and a subsidiary of Power Corp. of Canada. As part of this partnership, Great-West Lifeco made a substantial investment in Franklin Templeton and agreed to transfer $25 billion in assets under management within the next 12 months, with more to follow in subsequent years.

Executives from both Franklin Templeton and Putnam praised the deal, highlighting the shared values and strategic fit between the two companies. Robert Reynolds, president and CEO of Putnam, emphasised the client-centric culture and active management approach common to both firms. However, investors did not react as positively, with shares of Franklin Resources falling slightly following the announcement of the deal. Analysts suggested that the deal was more about distribution and unlocking opportunities in wealth management, insurance, and retirement businesses, rather than solely focusing on asset management.

Putnam's $136 billion in assets

Franklin Templeton's acquisition of Putnam Investments for $925 million was part of a broader arrangement with Power Corporation of Canada's Great-West Lifeco subsidiary to broaden Franklin's reach. Putnam, an investment management firm founded in 1937 by George Putnam, had $136 billion in assets under management as of April 2023. The company's roots are in Boston, where it was launched, and it currently has offices in London, Tokyo, Frankfurt, Sydney, and Singapore.

Putnam's asset value declined gradually from 2000, falling from $400 billion to $192 billion. At the time of its sale to Great-West Lifeco in 2007, Putnam's asset value was just under $200 billion. This sale was motivated by Great-West's decision to expand into the United States.

Over the years, Putnam has faced several challenges, including civil complaints filed by the Securities and Exchange Commission (SEC) and the Massachusetts Secretary of State in 2003, which resulted in a $110 million settlement. In 2005, Putnam paid a $40 million settlement for charges related to improper payments to brokerage firms. In 2006, an SEC lawsuit accused former employees of defrauding several mutual funds and a corporate retirement plan of $4 million. Despite these setbacks, Putnam has received recognition for its ethical practices and industry-leading service, and it continues to be a significant player in the investment management industry.

Franklin Templeton's growth strategy

Franklin Templeton's chief investment officer, Anand Radhakrishnan, has stated that the company's biggest strategy is to "remain truly diversified". This differs from the general understanding of diversification, which is commonly understood as sectoral diversification. Radhakrishnan has also said that there is a need to remain diversified and that portfolios need to have a reasonable amount of contrarian picks or companies that are facing challenges but are working hard to overcome them.

In July 2020, Franklin Templeton acquired Legg Mason, Inc. and its multiple specialist investment managers, establishing Franklin Templeton as one of the world's largest independent, specialised global investment managers with a combined $1.4 trillion in assets under management.

In November 2021, Franklin Templeton acquired Lexington Partners in a $1.75 billion cash deal. In January 2022, the company acquired O'Shaughnessy Asset Management, an asset management firm.

In May 2023, Great-West Lifeco announced that Franklin Templeton would acquire Putnam Investments for $925 million. The deal was completed in January 2024.

The benefits of scale and diversification

Franklin Templeton's acquisition of Putnam Investments for $925 million is a significant move that brings about various benefits, particularly in terms of scale and diversification.

The acquisition of Putnam Investments by Franklin Templeton, a fund giant, is a strategic move that offers several advantages. Firstly, it allows Franklin Templeton to expand its reach and resources by acquiring a well-established investment firm. This scale provides greater access to capital and expertise, enabling the company to pursue larger investment opportunities and enhance its market presence.

Diversification is a crucial aspect of investment portfolio management, and the acquisition of Putnam Investments contributes to this strategy. By acquiring Putnam, Franklin Templeton gains exposure to different asset classes, industries, and sectors. This diversification reduces overall risk and increases the potential for long-term returns. Putnam's expertise and investments in various sectors, such as transportation and entertainment, complement Franklin Templeton's existing portfolio.

The benefits of diversification are further enhanced by the partnership with Great-West Lifeco, Putnam's parent company, and its subsidiary, Power Corp. of Canada. This partnership diversifies Franklin Templeton's geographic reach and provides access to new markets and investment opportunities in Canada and beyond.

Additionally, the acquisition of Putnam Investments allows Franklin Templeton to access Putnam's talent pool and investment strategies. This talent acquisition can lead to improved investment decisions, enhanced research capabilities, and a more comprehensive understanding of market trends.

The scale of the combined entities also enables Franklin Templeton to achieve economies of scale, reducing the cost per investment and increasing operational efficiency. This, in turn, can lead to improved profitability and a more competitive position in the market.

In summary, the acquisition of Putnam Investments by Franklin Templeton provides significant benefits in terms of scale and diversification. It allows Franklin Templeton to reduce risk, increase long-term returns, access new markets, and enhance its market position through a diversified portfolio of investments and partnerships.

The role of asset management firms in M&A

Asset management firms are a vital component of the finance sector, providing a range of services to individuals and companies. They are responsible for managing funds and making well-timed investment decisions on behalf of their clients to grow their finances and portfolios. These firms are often engaged in the business of investing in and managing portfolios of securities, with the goal of increasing value while mitigating risk.

In the context of M&A (Mergers and Acquisitions), asset management firms play a crucial role in facilitating the acquisition process and ensuring the best interests of their clients are met. For example, Franklin Templeton's acquisition of Putnam Investments for $925 million demonstrates the role of asset management firms in M&A. Franklin Templeton, a fund giant, received a substantial investment from Great-West Lifeco, Putnam's parent company, as part of the deal. This illustrates how asset management firms can provide the necessary capital and investment to facilitate acquisitions.

Asset management firms work with a group of investors to diversify their clients' portfolios. They have access to a wide range of investment options, including property, shares, bonds, and other assets. By pooling funds from multiple clients, asset management firms can provide their clients with access to higher-value options and better capital appreciation prospects. This diversification also helps to mitigate risk, as the investments are inversely correlated to each other.

The success of asset management firms in M&A relies on their ability to make smart purchasing decisions. These firms conduct rigorous research, utilising macro and micro analytical tools, to identify the most profitable opportunities for their clients. Financial analysts and economists play a crucial role in providing insights and recommendations to asset managers, who ultimately have the final say in investment decisions.

It is important to note that asset management firms have a fiduciary responsibility to their clients, meaning they are legally bound to act in good faith and in their clients' best interests. This differentiates them from brokerages and insurance firms, which do not always have the same fiduciary duties. The expertise and decision-making power of asset managers are highly valued by clients, who often give them carte blanche in the decision-making process.

Frequently asked questions