A possible merger between Atlanta-based Invesco Ltd. and Boston-based State Street Corp.'s asset management business would significantly boost the AUM totals for the two financial giants, but the combination faces challenges while State Street works to process a recently announced acquisition.
The Wall Street Journal reported Sept. 16, citing people familiar with the matter, that Invesco and State Street Global Advisors Inc., have been in talks regarding a possible deal. Whispers surrounding the two asset managers date back for months: Bloomberg News reported in December 2020 that State Street was mulling potential deals for its asset management unit, with Invesco among the possible counterparties.
It's unclear which firm would acquire the other in the event of a deal, or whether they would pursue a merger of equals, but a combination of the two would produce a company with roughly $5.422 trillion in assets under management, ranking it as the second-largest public U.S. asset manager behind BlackRock Inc., with nearly $9.496 trillion in AUM.
Most of the combined firm's AUM would be derived from State Street, which had roughly $3.897 trillion in AUM as of June 30, nearly three times Invesco's $1.525 trillion. State Street's AUM has grown by 27.6% over the last four quarters, while Invesco's grew by 33.2% in the same period.
State Street Executive Vice President and CFO Eric Aboaf hinted at potential hurdles to a deal during a company conference presentation on Sept. 13.
Asked whether the firm's September deal announcement to acquire Brown Brothers Harriman & Co.'s investor services business would preclude a deal in the asset management space, Aboaf replied: "I think we're busy right now. I don't think there's any other way to say it. I think a year or two years or three years from now, probably two or three years from now, certainly, we'll look up at the horizon. But for now, we're just incredibly focused on doing what we started and doing it incredibly well, to be honest."
Keefe Bruyette & Woods Inc. analyst Michael Brown wrote in a Sept. 22 note that a State Street acquisition of Invesco would not be "financially compelling," calling an Invesco acquisition of State Street more likely.
However, Brown added that an Invesco acquisition of State Street would not meaningfully enhance Invesco's revenue and earnings growth profile, even though it could produce significant cost savings and earnings accretion for the firm.
Brown projected that if Invesco acquired State Street, the deal would have a value of $4.2 billion, which would make it the fourth-largest asset management deal completed since the start of 2019.
The only deals with larger transaction values over that period were Morgan Stanley's $9.15 billion acquisition of Eaton Vance Corp. in 2021, Brookfield Asset Management Inc.'s $4.8 billion acquisition of Oaktree Capital Group LLC in 2019 and Franklin Resources Inc.'s $4.44 billion acquisition of Legg Mason, Inc. in 2020.
Both Brown and Morningstar analyst Greggory Warren said in notes, though, that the chances of a State Street-Invesco deal were slim.
Brown put the likelihood of a transaction at less than 50%, and Warren wrote, in a Sept. 17 note, "It looks like nothing is imminent and a deal is as likely to fall apart as it is to go through in the near term."