Australia's Macquarie Group said on Thursday it had agreed to buy U.S.-based investment management firm Waddell & Reed Financial for $1.7 billion in cash, expanding the retail footprint of its largest unit in that market.
The deal is the company's first large acquisition under new Macquarie Chief Executive Officer Shemara Wikramanayake, who previously led the asset management unit that made the acquisition.
Shares of Waddell & Reed soared 47% in extended trading. The offer price of $25 per share represents a premium of 48% to Waddell & Reed's last closing price, the companies said.
Shares in Macquarie, which in recent years has transitioned from a pure investment banking firm to a conglomerate operating Australia's largest investment manager and one of the worlds' largest infrastructure investors, were 0.2% lower following the announcement.
"We see the deal as financially compelling," said Morgan Stanley analysts in a note, adding that after Waddell excess cash and investment, Macquarie's actual cash outlay would fall to less than $900 million.
"This signals (Macquarie) is ready to deploy excess capital."
Waddell has seen net outflows of up to 14% assets under management in the past three years and faces structural risks given about 60% of its $68 billion in assets under management is distributed via its own retail broker network and has higher fees, Morgan Stanley said.
Macquarie, however, has been successful in turning around previous underperforming acquisitions, including its 2009 purchase of Delaware Investments in 2009 which marked the company's shift into asset management, Morgan Stanley said.
The Waddell deal is expected to close in the middle of 2021, which would place Macquarie as a top-25 actively managed mutual fund manager in the United States, it said.
After the deal closes, Macquarie will sell Waddell & Reed's wealth management platform to U.S. investment advisory retail network LPL Financial Holdings for $300 million, and enter in to a partnership with the firm.