Shares of multinational holding company Franklin Resources, Inc. (BEN) soared 11.6% on Monday after the company reported better-than-expected financial results for the fiscal fourth quarter ended September 30 and announced the acquisition of Lexington Partners for $1.75 billion in cash.
Headquartered in California and referred to as Franklin Templeton, Franklin Resources offers investment management services. Its brands include Franklin, Templeton, Franklin Mutual Series, Franklin Bissett, Fiduciary Trust, Darby, Balanced Equity Management, K2, LibertyShares, and Edinburgh Partners.
Q4 Earnings Update
Adjusted earnings per share (EPS) jumped 125% year-over-year to $1.26, beating the Street’s estimate of $0.86. (See Insiders’ Hot Stocks on TipRanks)
Total operating revenues amounted to $2.18 billion, up 28% from the year-ago quarter. The figure surpassed analysts’ expectations of $2.02 billion.
Investment management fees grew 33% year-over-year to $1.7 billion; sales and distribution fees rose 11% to $408 million and shareholder servicing fees increased 22% to nearly $56 million.
The President and CEO of Franklin Resources, Jenny Johnson, said, “Investment performance across our specialist investment managers was strong and improved meaningfully across all time periods compared to a year ago. Improved performance has led to increased and more diversified gross sales as well as improved redemption rates.”
“We continue to see momentum in a number of core growth areas, with positive net flows during the fiscal year in alternatives, wealth management, SMAs and ESG-specific strategies,” Johnson added.
Lexington Partners Acquisition
Meanwhile, the company has signed an agreement to acquire New York-based alternative investment management firm Lexington Partners.
Lexington Partners has assets under management (AUM) of $34 billion and offices in New York, Boston, Menlo Park, London, Hong Kong, Santiago, São Paulo and Luxembourg.
Commenting on the deal, Johnson said, “This acquisition will position us to capitalize on the highly sought after secondary private equity market, an area of growth that complements Franklin Templeton’s existing alternative asset capabilities to meet the growing appetite of our clients for alternative asset management around the globe.”
The President of Lexington, Wil Warren, said, “This transaction provides for long-term continuity and stability for our investors, management team and employees. Furthermore, the transaction has been structured to provide significant ongoing ownership of Lexington by our team, providing continued strong alignment with our limited partners.”
As per the terms of the agreement, Franklin Templeton will pay $1 billion to Lexington at the time of closing the deal, and $750 million over the next three years.
The acquisition is expected to complete in the second quarter of Fiscal Year 2022, following which Lexington will operate as a Specialist Investment Manager within Franklin Templeton. The current management team of Lexington will continue in their roles after the transaction is closed.
Overall, the stock has a Hold consensus rating based on 1 Buy, 4 Holds and 1 Sell. The average Franklin Resources price target of $34.67 implies 1.4% downside potential. Shares have gained 79.4% over the past year.
According to TipRanks’ Smart Score rating system, Franklin Resources scores a 7 out of 10, suggesting that the stock is likely to perform in line with market averages.