On Monday, Franklin Resources Inc. (BEN) announced that its subsidiary Franklin Templeton Investments Australia Limited has agreed to acquire Balanced Equity Management Pty. Limited. Franklin is a global investment management organization operating as Franklin Templeton Investments.
Melbourne-based Balanced Equity Management is a wholesale Australian Equity fund Manager, which initially focused on investing only in Australia's 50 largest companies on behalf of wholesale clients. In 2003, the firm extended its investment universe and included Australia's 100 largest companies. As of May 31, 2011, the firm managed about A$10.3 billion ($11.0 billion).
Though financial terms have not been disclosed, the deal will be a cash and stock transaction. The acquisition is anticipated to be completed by early July 2011.
Franklin’s planned acquisition of Balanced Equity Management aims to mark its presence in the Australian market by providing best investment options for satisfying local investors' needs. The recognized Australian equity manager has over 20 years of experience in managing Australian equity strategies on behalf of large Australian superannuation and other institutional clients. Therefore, strategically the deal will be beneficial for Franklin as its investment options will be aided by local asset management expertise.
Balanced Equity Management manages large cap Australian equity portfolios. It uses a fundamental value approach and internal bottom-up analysis giving effect to environmental, social and governance (ESG) terms coupled with after-tax benefits to its clients.
Through this agreement, Balanced Equity Management looks forward to be a part of the well established Franklin. We expect the specialized investment strength of Balanced Equity Management in Australian equities to augur well for Franklin in the upcoming years. Moreover, the agreed upon transaction ensures long-term continuity for clients of equity manager in terms of investment team and process.
Franklin's global footprint is an exceptionally favorable strategic point, since its AUM is well diversified. This coupled with a strong balance sheet and completion of recent acquisition is expected to cushion the company.
However, the company is not immune to the volatile economic environment, which has been made worse by the costly regulatory environment. The regulatory restrictions could negatively impact the company’s AUM while at the same time increasing its costs.
Franklincurrently retains its Zacks #2 Rank, which translates into a short-term ‘Buy’ rating. Moreover, considering the fundamentals, we maintain a long-term Outperform recommendation on the stock. Besides, Franklin’s closest competitor – BlackRock Inc. (BLK), retains a Zacks #2 Rank (a short-term Buy rating).
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