Morgan Stanley to buy Calgary-based Solium Capital

Bank makes biggest purchase in a decade, said to be eyeing more acquisitions

Morgan Stanley just announced its biggest acquisition in a decade and agreed to pay the largest premium of any major financial deal this year. It may just be getting started.

The firm, which said it will spend US$900 million for stockplan administration company Solium Capital Inc., isn’t ruling out acquiring traditional wealthmanagement firms as well as more financial-technology companies, people familiar with the matter said Monday.

Future deals might be aimed at adding scale to Morgan Stanley’s US$400-billion asset manager, the people said, asking not to be identified discussing private strategies.

Chief executive James Gorman is turning to takeovers after mostly focusing since the 2008 financial crisis on improving performance and integrating its Smith Barney purchase.

That process was long and costly, but ultimately created a workforce of more than 15,000 financial advisers with the highest return on equity of any division at the bank. “As we’ve said, we’d look to pursue more,” Andy Saperstein, co-head of wealth management at Morgan Stanley, said in an interview. He declined to be more specific.

Morgan Stanley agreed to pay 43 per cent more than Calgary-based Solium’s closing price on Friday because the acquisition is being valued based on what it would be worth when combined with a bank of Morgan Stanley’s size, the people said.

The premium “might raise a brow,” Glenn Schorr, an analyst at Evercore ISI, said in a note to clients. “But we think this makes significant strategic sense” and won’t affect Morgan Stanley’s ability to return capital to shareholders. Shares of Morgan Stanley fell 1.47 per cent to close at US$40.21 in New York, while Solium surged 43.11 per cent to C$19.12.

The deal is subject to the approval by a two-thirds majority vote by shareholders. All of the directors of Solium, who collectively control 19 per cent of the company, have agreed to support the purchase. Subject to regulatory approvals, the deal is expected to close in the second quarter of 2019. Registered investment advisers have been courting Morgan Stanley executives, who are expecting a shake-out in the industry as markets become more volatile and smaller firms find they need scale to succeed, the people said. “Particularly as markets get choppy, there’s no doubt there will be fewer advisers over the next few years,” Saperstein said. “Folks will either run for safety — i.e., consolidation — or exit.”

Particularly as markets get choppy, there’s no doubt there will be fewer advisers over the next few years.