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Federated Buys Assets Worth $91M from Touchstone Advisors - Analyst Blog

On Friday, Federated Investors Inc.FII and Touchstone Advisors, Inc., an investment adviser entered into a deal under which, Federated will acquire tax-free money market assets worth $91 million. Increased assets under management furnish Federated with various new fund offerings that would benefit its clients.

The acquisition, which is expected to be completed in the second quarter of 2015, is anticipated to be tax free. Moreover, closing of the transaction awaits shareholders' approval and certain other factors.

The money market fund managers are under pressure due to the lingering low interest rate environment and the increasing number of regulations. Therefore, Federated came up with the plan of buying more assets to enhance its business in strategically important segments.

Terms of the Deal

Under the agreement, Federated, one of the largest investment managers, will acquire tax-free money market assets worth $91 million related to Touchstone's management of the Touchstone Ohio Tax-Free Money Market Fund. These assets will be merged into Federated Ohio Municipal Cash Trust, which has the same investment objectives.

Federated Ohio Municipal Cash Trust with about $391 million in net assets was established in 1990. It is a portfolio of the Federated Money Market Obligations Trust, which has about $184 billion in total net assets. Having $19 billion in tax-free, state-specific money market assets under management, Federated is recognized for offering more tax-free state money market products compared to other investment managers.

For quite sometime, Federated has been working with different banks to offer investment products catering to the needs of the clients. Therefore, Federated's experience, coupled with its proficiency in providing customer service, will be opportunistic for Touchstone's shareholders. Moreover, the completion of the deal will enable the shareholders to access a wider array of investment products. Federated is looking forward to many such opportunities in order to provide cream services to its clients.

Similar Acquisitions in the Past

Since the beginning of 2012, Federated has penned certain similar deals. Earlier in Sep 2012, Federated and Trustmark Corporation TRMK closed a deal under which, Federated acquired assets worth $929 million from Performance Funds Trust, a wing of Trustmark. Previously, in the same month, Federated acquired money market assets worth $4.4 billion from four Fifth Third money market funds of Fifth Third Asset Management Inc. (FTAM), the asset management subsidiary of Fifth Third Bancorp FITB .

In Apr 2012, Federated completed the expansion of its operations in United Kingdom by acquiring London-based Prime Rate Capital Management, LLP from Matrix Group Limited. The firm provides institutional liquidity and fixed-income products.

In May 2014, Federated and Huntington Asset Advisors, Inc., a unit of Huntington Bancshares, Inc. HBAN completed a deal under which, Federated acquired fixed-income assets worth $300 million.

Our Viewpoint

Federated has the potential to grow in the long run on the back of its diversified asset and product mix, global expansion and a fairly healthy balance sheet. Going forward, management expects to maintain this balanced growth structure.

Moreover, investors' increased demand for the company's wide range of income-oriented products will help it increase profitability. However, certain factors like regulatory backdrop, volatile equity markets and sluggish global economic growth are likely to keep earnings under pressure.

Federated currently carries a Zacks Rank #3 (Hold).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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