Franklin Resources Inc.’s acquisition of Legg Mason Inc., a deal that would create one of the world’s largest asset managers, is a positive, but has its share of challenges, says Moody’s Investors Service Inc.
The rating agency noted that the deal will create a firm with US$1.5 trillion in assets under management. It also will add both new products and complementary services, “mainly in distribution, which should fortify Franklin’s traditional strengths in wholesaling mutual funds.”
However, Moody’s stated, the transaction doesn’t necessarily solve Franklin’s growth challenges.
“There is unquestionably a significant degree of integration risk in such a large acquisition, given the number of separate investment organizations and the multiplicity of interfaces between product and distribution teams,” Moody’s stated.
One of the keys to mitigating the integration risk, Moody’s said, will be aligning the investment organizations with the distribution structures, and choosing the teams that are best positioned to capitalize on the combined firms’ strength.
“Only time will tell if fund performance, distribution intelligence, budgeting, technology and individual incentives will come together to fully recognize the potential of a $1.5 trillion asset manager,” it said.