Franklin Resources, Inc.
), operating as Franklin Templeton Investments, announced the
acquisition of the controlling stake in K2 Advisors Holdings LLC
(K2), an independent fund of hedge funds solutions provider.
Financial terms of the deal were undisclosed.
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The purchase of K2 will assist Franklin Templeton in improving and
expanding its alternative investments and multi-asset solutions
platforms. Such strategic initiatives would help Franklin in
providing world-class investment solutions to its clients and auger
well for worldwide expansion.
Terms of the Deal
Starting calendar year 2016, Franklin will buy the remaining stake
in K2 over a number of years. Yet, the deal awaits regulatory
approval and is anticipated to close in the fourth quarter of
calendar year 2012.
K2 will use the proceeds of the transaction to buyout TA
Associates, which currently possesses a stake in the company.
Moreover, the fund received will help K2 in retiring all its debt
obligations. However, currently no interest will be sold by the
managers of the company and it will not receive any upfront
consideration from Franklin.
K2's managing directors -- William A. Douglass III and David
C. Saunders - will retain their positions as per the agreement and
will manage the business as no changes are planned for investment
management procedures of K2 as of now.
) acted as financial advisor to Franklin Templeton, while Bank of
America Merrill Lynch, a division of
Bank of America Corporation
) and Freeman & Co. served as financial advisors to K2.
As of August 31, K2 operated in the U.S., U.K., Japan, Australia
and Hong Kong with 115 staff members, and had about $9.3 billion in
assets under management.
Franklin has a history of making smaller strategic acquisitions and
buying highly experienced asset management companies. In 2010,
Franklin acquired a 20% stake in Pelagos Capital Management.
Benefits of the Acquisition
Franklin aims at focusing on innovative investment strategies and
receive access to various channels in order to advance its
capabilities. Therefore, K2 will significantly aid in enhancing its
services for institutional investors who prefer to invest in
the hedge fund and fund of hedge funds space through multi-asset
Moreover, K2's endeavor in creating alternative investment
solutions would enhance overall returns and lower portfolio
volatility for Franklin. Further, K2 works with advanced risk
management systems, which would aid Franklin in maintaining its
entrenched commitment to risk management.
On the other side, managers of K2 feel privileged to be part of
Franklin, based on the company's well established global market
share and widespread resources in distribution, operations and
Additionally, managers are attracted towards Franklin's reputation
of possessing a constructive relationship with acquired asset
management firms and helping them in operating as standalone
businesses using the resources of the company's diverse platforms.
Franklin's global footprint is an exceptionally favorable strategic
point as its assets under management are well diversified. The
company is also poised to benefit from its strong balance sheet.
Moreover, the recent acquisition along with other deals completed
in 2011 is expected to strengthen its financials. However, the
regulatory issues and sluggish economic recovery could mar the AUM
growth and increase costs.
Franklin currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating. Considering the company's business model
and fundamentals, we also maintain a long-term 'Neutral'
recommendation on the stock.