State Street Corp. is making its largest acquisition since 2007 to become even bigger and more international in one of its core practices, investor services.
In a business that’s focused on greater scale and efficiencies, the firm’s $3.5 billion acquisition of Brown Brothers Harriman’s (BBH) Investor Services unit will add $5.4 trillion to its $31.9 trillion in assets under custody, making State Street Corp
a top player in investor services.
That means that State Street’s reach as a custodian for funds, fund accounting, and keeping shareholder records will become wider. The BBH business and its 4,800 employees will add a greater presence in Japan, the Middle East, and Latin America for State Street, along with more accounts for foreign exchange lending.
Despite these longer-term benefits, shares of State Street fell 3% on Tuesday, after the company said it would issue common stock and suspend its stock buybacks until 2022 to help pay for the deal.
The acquisition also helps State Street build out its technology offering, State Street Alpha, that started with its 2018 acquisition of Charles River Development for $2.6 billion. Technology from BBH Investor Services will augment State Street Alpha as it positions itself a “front-to-back” asset servicing platform, State Street said.
“BBH Investor Services brings well established data connectivity tools, branded Infomediary, that will allow us to automate and integrate data for clients in a more streamlined way,” the company said.
For State Street, the acquisition ranks as its largest deal since 2007’s purchase of Investors Bank & Trust for $4.5 billion.
As part of the deal, Seán Páircéir, who is currently partner and global head of investor services at BBH, will become a member of State Street’s management committee.
Among the key metrics of the deal for Wall Street investors, State Street said BBH Investor Services will add $1.4 billion in revenue and $300 million in pretax income to its business. State Street plans to realize about $260 million in cost synergies in the deal.
State Street also plans to issue common equity and suspend share purchases until the second quarter of 2022 to help pay for the acquisition.
The company said the BBH business will add about 1% to its pretax margin to bring it up to about 31%.
The purchase does not include BBH’s private banking and investment management businesses.