Franklin Templeton to Acquire Putnam for $925 Million

Global asset manager Franklin Templeton announced Wednesday it has entered an agreement to purchase Putnam Investments for $925 million, further boosting its asset management scale and capabilities in the retirement plan space.

Franklin Templeton, a division of Franklin Resources Inc., has agreed to purchase Boston-based Putnam from parent firm Power Corp. of Canada in a “strategic partnership” that give’s Power Corp.’s Great-West Lifeco Inc. a 6.2% stake in Franklin, the firms announced.

Great-West, which also owns Empower Retirement, will commit $25 billion to Franklin Templeton’s “specialist investment managers” within 12 months of the deal closing, with that amount expected to increase over the next several years, according to the announcement. Empower is the country’s second-largest retirement recordkeeper behind Fidelity Investments.

The deal is designed to speed up Franklin Templeton’s growth in the retirement sector and, if completed, would increase its defined contribution assets under management to about $90 billion, according to the announcement.

“The strategic partnership aligns with Franklin Templeton’s focus to further grow insurance client assets and significantly broadens the relationship between Franklin Templeton and the Power Group of Companies in key areas of retirement, asset management and wealth management,” San Mateo, California-based Franklin Templeton stated in the announcement.

The announcement did not address the role that will be played by current Putnam President and CEO Robert Reynolds or other executives at the firm.

“We look forward to joining Franklin Templeton in this next phase of our growth, as we come together to serve our clients, upholding our commitment to them and their needs,” Reynolds said in a statement.

Along with his role at Putnam, Reynolds was president and CEO of Great-West Financial from 2014 to 2019, and he also held a senior position at Fidelity Investments as vice chairman and chief operating officer from 1984 to 2007.

Equity Play

Franklin Templeton will purchase Putnam primarily with $825 million in equity up-front at closing and $100 million in cash 180 days after closing, the firms announced. The deal also includes as much as $375 million in contingent payments tied to revenue growth from the partnership. The transaction is expected to close in the fourth quarter of 2023.

“This is a compelling transaction for Franklin Templeton, and we are excited about the numerous opportunities that will be unlocked by this long-term strategic partnership with the Power Group of Companies, including Great-West,” Jenny Johnson, president and CEO of Franklin Templeton, said in a statement. “Putnam will add complementary capabilities to our existing specialist investment managers to meet the varied needs of our clients and will increase Franklin Templeton’s defined contribution AUM.”

For Franklin Templeton, the deal adds scale to its AUM, capabilities and client relationships, says Dick Darian, founder and CEO of Wise Rhino Group, a retirement sector M&A advisory. He notes that the firm, though looking for creative ways to grow the business, is dwarfed in the space by players such as BlackRock, Vanguard and State Street. As asset managers face compressed fees and increased investment personalization from investment firms, further consolidation is “inevitable,” Darian says.

“Anyone looking at the asset management industry can see it has to consolidate,” Darian says. “There are too many players adding too little value, and the customer is demanding more for less.”

The deal adds to Franklin Templeton’s active pace of acquisitions. Most recently, the company announced earlier this month the acquisition of volScout LLC, a startup that provides separately managed accounts and manages investor portfolios, adding to the managed option solutions on offer to advisers serving institutional clients and high-net-worth investors, according to an announcement at the time.

Most significantly, in 2020, Franklin Templeton expanded its institutional footprint with its acquisition of Legg Mason and its multiple investment affiliates, which, at the time, managed more than $806 billion. At the time, the company announced that the acquisition established Franklin Templeton as one of the world’s largest independent, specialized global investment managers, with a combined $1.5 trillion in AUM across one of the broadest ranges of investment teams in the industry. The combined footprint of the organization was intended to significantly deepen Franklin Templeton’s presence in key geographies and create an expansive investment platform well-balanced between institutional and retail client AUM.

Great-West Still Committed

The Great-West shareholder position in Franklin Resources will continue the firm’s ongoing “commitment to asset management,” the announcement said, even as it exits ownership of Putnam, which had $136 billion in asset under management as of April 2023.

“This transaction furthers Great-West’s strategy of building strategic partnerships with best-in-class asset managers to support our clients’ retirement, insurance, and wealth management needs,” Paul Mahon, president and CEO of Great-West, said in a statement.

For Great-West’s Empower retirement business, the sale of Putnam may be part of a strategy to stay close to the revenue generated from asset management without the conflict of interest that can arise from the recordkeeper’s push into participant advisement and consumer wealth management, says M&A consultant Darian.

“I would look at the investment component [of the transaction] and think that Great-West is saying, ‘We are not going to scale Putnam as we are investing in other things, so first, let’s sell Putnam when it’s probably at the best price right now. … And two, let’s do to it in a way that we are still involved as an investor.’”

Power Corp. has made changes to its retirement and investment assets over the years. In 2014, it combined the retirement recordkeeping businesses of both Great-West and Putnam, keeping the companies distinct entities after the move for other lines of business. The combined retirement entity continued to operate solely under the Great-West Financial organization.

In 2019, Great-West Life & Annuity Insurance Co. sold almost all of its individual life insurance and annuity business to Protective Life Insurance Co., the primary subsidiary of Protective Life Corp.. The business included bank-owned and corporate-owned life insurance, single premium life insurance, individual annuities and closed block life insurance and annuities. At the time, a Great-West representative told PLANADVISER there were numerous reasons for the decision, but the firm’s focus was on the Empower retirement business and Great-West Investments.

The Power Group of Companies, based in Montreal, operates in the areas of insurance, retirement, asset management and wealth management. Together, its firms have $2.1 trillion in AUM.