State Street Will Become the World’s #1 Provider of Asset Servicing1
Brings Together Two Premier Businesses with Significant Scale to Drive Benefits for Clients and Shareholders
Earnings Accretion Expected in Year 12
State Street Increases Pre-Tax Margin Medium-Term Financial Target
BOSTON & NEW YORK–(BUSINESS WIRE)–State Street Corporation (NYSE: STT) and Brown Brothers Harriman & Co. (BBH) today announced that they have entered into a definitive agreement for State Street to acquire BBH’s Investor Services business, including its custody, accounting, fund administration, global markets and technology services, for $3.5 billion in cash. Following the transaction, BBH will continue to independently own and operate its separate Private Banking and Investment Management businesses. The parties are targeting year-end 2021 to complete the acquisition, subject to regulatory approvals and customary closing conditions.
BBH Investor Services is a global asset servicer with a track record of exceptional client service and deep expertise in cross-border, alternatives, ETFs, and other high-growth asset classes. As of June 30, 2021, BBH Investor Services had $5.4 trillion in Assets Under Custody (AUC), adding to State Street’s $31.9 trillion in AUC.3
The acquisition is expected to advance State Street’s strategy as an enterprise outsource solutions provider by creating the number one asset servicer globally,1 strengthening competitive positioning, expanding geographic coverage and enhancing client experience.
“The Investment Servicing industry enjoys strong fundamentals as worldwide growth in financial assets drives industry revenues. This combination with BBH Investor Services helps us consolidate our position as the industry innovator and leader,” said Ron O’Hanley, Chairman and Chief Executive Officer of State Street Corporation. “We are enhancing our leadership position across a range of services, augmenting our position in a number of key markets, growing relationships with many of the leading global asset managers and owners, and increasing our capabilities and scale. Additionally, BBH Investor Services brings us strong talent, including industry leading service excellence and quality execution.”
“We made this decision after careful consideration of the current and future landscape of the global securities servicing industry, including how best to support and innovate for the growing breadth and complexity of our clients’ servicing requirements,” said Bill Tyree, managing partner of BBH. “State Street is the ideal partner – a firm that shares our core values of unmatched client service, integrity, trust, and a long-term commitment to sustainability.”
Upon closing of the transaction, BBH Investor Services employees will move to State Street. The senior management team will transition to State Street in executive leadership roles, and Seán Páircéir, currently partner and Global Head of Investor Services at BBH, will join State Street’s Management Committee.
Transaction Details
The acquisition creates meaningful shareholder value by increasing State Street’s earnings growth potential and its pre-tax margin medium-term target. As a result of the anticipated earnings growth from this transaction, State Street is now targeting an increased pre-tax margin of 31%.4
Post close, the transaction provides the potential for significant benefits for State Street shareholders from estimated fully-phased in expense synergies5 of $260 million in year 3 as a result of efficiencies in operational systems and infrastructure, as well as overhead consolidation. Additionally, State Street has identified an estimated $35 million of EBIT from known balance sheet actions and $40 million of EBIT from estimated net revenue synergies5 in Investment Servicing and Global Markets in year 3.
State Street expects the transaction will be primarily financed through the issuance of common equity, the suspension of common share repurchases before resuming during 2Q22, and cash on hand. The acquisition is expected to be accretive to earnings per share in year 1.2
Propels State Street’s Core Strategy
Leveraging the best technology and capabilities from each company will enhance State Street’s current set of product solutions for new and existing clients. BBH Investor Services brings innovative data connectivity tools to the broad marketplace that will be additive to State Street’s product suite and provides a toolset that represents an important enhancement to its service offering. BBH Investor Services’ Infomediary® platform, which facilitates data transmission and integration among buy-side and sell-side systems, will also support the State Street AlphaSM platform and facilitate integration of clients onto the platform while mitigating future development cost. Adding BBH Investor Services’ list of premier clients to State Street will also expand the base of potential users of State Street Alpha.
The addition of BBH Investor Services will further State Street’s strategic goal of expanding and deepening its presence in key non-US markets, including developed markets such as Japan, Luxembourg, and Ireland, as well as Latin America, which State Street has targeted for growth.
Client Focused Organization with Deep Expertise
The transaction will also add additional depth to State Street’s expertise in relationship management, client service, operations and technology that can be integrated across all of State Street’s global client segments.
“One of the most attractive elements for us is BBH Investor Services’ first-rate talent and team of professionals with client service excellence, which strengthens our value proposition and is completely aligned with our focus and vision of being our clients’ enterprise outsourcer and essential partner,” added O’Hanley.
“We found in State Street a partner who shares our singular focus on delivering exceptional client outcomes, without exception,” said Páircéir, head of BBH Investor Services. “We are committed to adopting best practices from both organizations to create an unmatched offering for the world’s most sophisticated asset managers and financial institutions.”
Goldman Sachs & Co. LLC served as financial advisor and Davis Polk & Wardwell LLP served as legal advisor to State Street in connection with the transaction. Lazard served as financial advisor and Sullivan & Cromwell LLP served as legal advisor to BBH in connection with the transaction.
Conference Call
A conference call to discuss the proposed acquisition will be held at 8:00 a.m. ET today, on Tuesday, September 7, 2021. The call will be open to the public. A webcast of the conference call will be accessible on State Street’s Investor Relations website, http://investors.statestreet.com, and by telephone at (866) 211-3118 or (647) 689-6605 (Conference ID# 9389324). A replay of the conference call will be available for approximately two weeks following the conference call on State Street’s Investor Relations website, http://investors.statestreet.com, and by telephone at (800) 585-8367 or (416) 621-4642 (Conference ID# 9389324).
About State Street Corporation
State Street Corporation (NYSE: STT) is one of the world’s leading providers of financial services to institutional investors including investment servicing, investment management and investment research and trading. With $42.6 trillion in assets under custody and/or administration and $3.9 trillion* in assets under management as of June 30, 2021, State Street operates globally in more than 100 geographic markets and employs approximately 39,000 worldwide. For more information, visit State Street’s website at www.statestreet.com.
*Assets under management as of June 30, 2021 includes approximately $64 billion of assets with respect to SPDR® products for which State Street Global Advisors Funds Distributors, LLC (SSGA FD) acts solely as the marketing agent. SSGA FD and State Street Global Advisors are affiliated.
About Brown Brothers Harriman
BBH is a privately-held, global financial services firm founded in 1818 and headquartered in New York City. It counts among its clients institutions, privately-held companies, families and wealthy individuals which it serves through its three business lines: Investor Services, Investment Management and Private Banking. The firm is known for its advanced technology, exceptional client service and selectivity.
BBH’s Investor Services business provides cross-border custody, accounting, administration, execution and technology services to many of the world’s leading asset managers and financial institutions. BBH’s Investment Management and Private Banking businesses manage public and private securities portfolios, advise banking clients on strategic direction, provide debt financing and banking services and offer trust and estate services.
BBH, including BBH Investor Services, operates in over 90 markets worldwide from 17 offices. BBH employs approximately 6,000 professionals. For more information, please visit www.bbh.com.
Endnotes
- World’s #1 provider of asset servicing based on AUC. Source: Global Custodian, State Street, and BBH Investor Services internal analysis as of quarter-end 2Q21 excluding central securities depositories. AUC for BBH and certain peers based on internal analysis. State Street as reported based on Global Custodian. Also see endnote 3.
- Expected earnings per share (EPS) accretion does not reflect estimated acquisition and restructuring costs. This is a non-GAAP presentation. See the slide presentation available on State Street’s Investor Relations website and included in the presentation materials referenced above under “Conference Call” for a description of State Street’s use of non-GAAP measures and related information. Non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, financial measures determined in conformity with GAAP.
- As of June 30, 2021, Assets Under Custody and/or Administration (AUC/A) for State Street was $42.6 trillion.
- Medium-term financial targets to be met by the end of 2023 or on a run-rate basis for FY2024. Pre-tax margin target assumes the closing of the announced acquisition of BBH Investor Services on December 31, 2021 (which closing is subject to regulatory approvals and customary closing conditions).
- Gross cost synergies represent the reduction in pre-tax expenses achieved in a given year relative to 2020. Cost synergies are on an EBIT basis and do not reflect acquisition and restructuring costs. Revenue synergies primarily represent opportunities to provide access to State Street’s broader range of FX products and platforms, expand share of wallet with clients and to redirect cash and deposits onto State Street’s balance sheet. Revenue synergies are on an EBIT basis and are net of associated incremental operating costs.
Source: State Street
