Wells Fargo & Co. (WFC) has completed the acquisition of its strategic partner, Castle Pines Capital. The buyout was a part of Wells Fargo’s effort to expand its business and add channel financing capabilities.
Castle Pines Capital offers channel financing solutions to resellers in the technology sector worldwide. It became a client of Wells Fargo Capital Finance’s Lender Finance segment in 2005. Later in 2007, Wells Fargo advanced its strategic tie ups with the company by acquiring a minority equity investment in Castle Pines Capital.
Late in May, Wells Fargo announced that in order to carry out the acquisition process, Wells Fargo Bank NA has entered into a definitive agreement to take over the remaining equity interest in CP Equity LLC, the lone owner of Castle Pines Capital LLC and its affiliates.
Terms of the deal were not disclosed and transaction was completed last Friday. Castle Pines Capital’s financial advisor was Morgan Stanley (MS) while its legal advisor was Bryan Cave LLP.
Channel finance capabilities of Castle Pines Capital will now be added to the family of commercial finance products and services offered by Wells Fargo Capital Finance, part of the Wholesale Banking group. However, Castle Pines Capital would continue to operate under its own name.
Strategic acquisitions have been part of Wells Fargo’s endeavor to strengthen its business model, expand its capabilities and diversify its footprint. Its growth plans have historically included several acquisitions, Wachovia being the largest addition in December 2008. The company has demonstrated its ability to assimilate local franchises, offering a wider range of products than the acquired company could have had, thus increasing the number of options for customers to choose from. This has been the driving force behind its growth in the recent years.
With cross-selling as its key strength, Wells Fargo has a diverse geographic and business mix that enables it to sustain consistent earnings growth. Opportunistic acquisition and the demise of some smaller players helped the company to garner a larger share in the market. Yet, top-line headwinds and regulatory issues remain our concerns.
Wells Fargo currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. We also have a Neutral recommendation on the stock.
MORGAN STANLEY (MS): Free Stock Analysis Report
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