On Friday, Legg Mason announced that they will be making three major purchases in an effort to increase revenue and diversify their clientele. They also feel that these purchases will open doors to their clients that were previously closed.
According to Joseph Sullivan, the CEO of Legg Mason, it has become a necessity to expand the options that their clients have. Currently, the largest deal the company is taking part in is purchasing 83% stake in Clarion Partners in New York City. This purchase alone is costing Mason approximately $585 million.
There was also an announcement that Mason will be merging Permal, a hedge fund platform that is owned by them with EnTrust Capital, based out of New York City. The merged company will be called EnTrustPermal, and Legg will own approximately 65% of the company as a whole, while EnTrust Capital founder and CEO Gregg Hymowitz will own the remaining 35%. This merger alone will cost Legg $400 million.
According to sources, the various mergers and stake purchases could make or break the company over the next year. The companies that Legg is acquiring have sound investments and have amazing asset flows. However, the mergers that are being made are not recommended by most analysts.
Mergers that diversify companies to this extent can cause serious damage to the interworking’s of a company. Mason does not see their investments as a diversification of their company. They see it more of a “product line expansion.” It is also a great way to reduce the sting from loss at the end of 2015.
Basically, the company saw that the limited market they were in was causing financial damage to their company. By buying their way into companies that are already stable and already seeing receiving a significant amount of profit from their current market, they are strengthening their brand and bringing in a new possible client base.
Overall, the company goal is to expand the number of choices provided to their global clients as well as increase the return their clients have access to. Their commitment to their clients comes before anything else and if they have to invest a few million dollars to ensure their clients see the return they are expecting, they are more than happy to invest the money and expand their market.
The remaining part of these mergers is expected to be completed in 2016 and profits are expected to rise before the end of the year.