By Liz Hoffman
Morgan Stanley is making a play for the thousands of employees
in the startup economy who might one day be millionaires.
The bank will pay $900 million to acquire Solium Capital Inc.,
which manages the stock that corporate employees receive as part of
their pay. The deal is the largest takeover by any major Wall
Street firm since the crisis.
That it comes in stock-plan administration, an unglamorous and
humdrum business, reflects sweeping changes in the decade since.
Higher-octane businesses such as securities trading are less
lucrative and less valued by shareholders, who instead want
steadier, subscription-like businesses that will do well in hot
markets and cold.
Solium's 3,000 corporate clients have one million employees and
include startups such as payments firm Stripe Inc. and delivery
service Instacart Inc., whose workers tend to be younger and have
fewer relationships with banks. The luckiest will become
millionaires overnight if their companies go public. Others could
get wealthier over time and buy houses, plan for retirement and
invest in the market.
Chief Executive James Gorman is betting he can convert them into
clients of Morgan Stanley, whose wealth arm manages $2.3 trillion
for 3.5 million American households.
"Most people's money is coming through their workplace, so it's
an obvious place for us to be," Mr. Gorman said in an
interview.
Morgan Stanley's existing stock-plan business has about 330
corporate clients including Microsoft Corp. and Ford Motor Co. and
covers 1.5 million employees. But it is geared toward top
executives rather than rank-and-file employees, and Fortune 500
companies rather than startup darlings.
"We didn't historically have a way to serve them," Mr. Gorman
said. "Now we do."
Morgan Stanley will pay 19.15 Canadian dollars a share for
Calgary, Alberta-based Solium, a 43% premium over its Friday
closing price of C$13.36, or about US$10. The stock closed Monday
at C$19.12.
Morgan Stanley expects the deal to close by June 30.
The price tag "might raise a brow, but we think this makes
significant strategic sense," said Glenn Schorr, an analyst with
Evercore Partners. "Our gut is this is a win-win...as advisers
might get a ton of new clients handed to them over time."
Solium can feed other parts of the bank's business. Its client
roster includes startups that Morgan Stanley's investment bankers
are eager to take public, and companies whose pensions and spare
cash the bank can manage. When employees go to sell their shares,
they will do so through Morgan Stanley's trading desk.
Mr. Gorman, Morgan Stanley's CEO since 2010, has sounded more
acquisitive as he stabilized the bank and increased profits. The
bank bought a real-estate investment firm in 2018 and has been
scouting larger asset-management deals.
"Last year was the first time we felt comfortable that we could
even consider [acquisitions]," Mr. Gorman said. "We'd like to do
more."
Regulators appointed by President Trump have signaled they are
more open to acquisitions by big banks.
Solium is the largest corporate takeover by a major Wall Street
firm since the financial crisis, when shotgun weddings hastily
arranged by regulators reshaped the nation's largest banks.
Today's deals are more likely to be in businesses that require
little capital and throw off subscription-like revenue. Stock-plan
management fits the bill. Companies pay annual fees to
administrators, which also collect fees from employees when they
sell their stock or exercise options.
Morgan Stanley once considered getting out of the business,
where it was a distant competitor to Fidelity Investments Inc. and
E*Trade Financial Corp. and lacked the digital offerings to serve
less-wealthy clients. In 2016, after losing a number of top
corporate clients, it outsourced its contracts to Solium.
Meanwhile, Morgan Stanley launched an online wealth-management
tool, where it can now park smaller accounts until they are big
enough to merit a human adviser. Employees in Solium's plans will
start out there, said Andy Saperstein, who co-heads Morgan
Stanley's wealth business. "We can incubate those relationships,"
he said.
In the long run, Morgan Stanley will likely need to beef up its
banking products to do more business with those customers. It
doesn't have checking accounts or its own credit cards and has a
small mortgage operation. It is also likely to expand its 401(k)
business to better compete with Fidelity, which offers more of a
one-stop shop for corporate HR executives.
Rival Goldman Sachs Group Inc. is also pushing into workplace
wealth in search of steadier revenues. The firm is expanding its
Ayco business, which offers financial and tax advice to corporate
executives, down through the employee ranks, and has built employee
financial-wellness websites for companies including Alphabet
Inc.
Solium earned C$81 million in revenue through the first nine
months of 2018, up 29% from a year earlier. Its stock, up 30% over
the past year, closed Friday within a penny of its record high. It
has a contract with UBS Group AG's wealth-management arm, though it
couldn't be determined whether that will continue after the
acquisition.
Morgan Stanley said the acquisition wouldn't have a meaningful
impact on its 2019 earnings or reduce its planned stock buybacks.
The bank has regulatory approval to repurchase $2.6 billion in
shares before June 30.
Write to Liz Hoffman at liz.hoffman@wsj.com
(END) Dow Jones Newswires
February 11, 2019 19:14 ET (00:14 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.