Franklin Resources Inc. executives discussed the announced acquisition of Lexington Partners LP during their earnings call Nov. 1, labeling the transaction as an "important step further in creating a larger and more diversified alternative asset business."
The acquisition marks the third notable "alternative strategies" acquisition in three years for Franklin Resources, which goes by the brand name Franklin Templeton, as part of their initiative to create "a full suite of alternative strategies," Franklin Templeton CEO Jennifer Johnson said during the call.
"We're acquiring 100% [of] Lexington Partners for $1 billion in cash at closing plus a further $750 million in cash over the next 3 years. We have also structured this transaction to ensure continuity and strong alignment of interest with Lexington's clients, partners and employees over the long term," Franklin Templeton CFO Matthew Nicholls said.
Johnson noted that Lexington Partners, a global leader in secondary private equity and co-investments, "provides us the exposure to a critical growth area in the alternative asset business, and we cannot be happier with this new partnership." The CEO added that the acquisition will "immediately [bring] us scale and capabilities in an attractive and growing global market."
"The forward-looking growth of Lexington standalone is very attractive to us ... when you apply the additional growth potential through adding our resources with broader client bases across high net worth and other distribution globally, we think it could actually add more to the numbers that we've highlighted today," Nicholls said.
Johnson confirmed that there would not be any major changes to Lexington Partners, as they will continue to operate autonomously under their own name with the same management team.
Lexington Partners has a team of 135 employees across eight global offices. Johnson said Lexington Partners currently has $34 billion in assets under management and is expected to generate about $350 million in revenue in 2022.
As for Franklin Templeton, the company expects their alternative assets under management to grow to $200 billion and their annual management fee revenue to climb past $1 billion upon the close of the transaction in 2022.
Nicholls believes the company has developed "strong and complementary capabilities in alternative credit, real estate, hedge fund solutions and [private equity]-related activities."
"Given the overall size and growth of private equity and the likelihood of further private market expansion, having a specialist investment manager [like Lexington] tied to this sector of alternative assets is a logical step in the diversification of our business," he added.
Franklin Templeton will keep its eyes open for additional M&A opportunities.
"We intend to continue adding complementary business in both wealth management and asset management, including asset class and geographic expansion," Nicholls said.