State Street Corp.’s purchase of Charles River Development caused shares to slide Friday, as investors questioned the firm’s plan to complete the acquisition as well as the price tag.

The company announced the deal last Friday and then shares fell 9 percent, the biggest lost the custodian bank has suffered since August 2015, according to Bloomberg.

The bank said it plans to suspend about $950 million of share repurchases and issue common and preferred equity to finance the deal.

“Investors always want to take some time to digest a deal and decide whether or not it fits with why they bought our stock” State Street’s incoming CEO Ronald O’Hanley said during an interview on CNBC. “Investors need to understand our rationale, which we believe is quite compelling.”

Under the terms of the agreement, State Street plans to purchase Charles River Development in an all-cash transaction for $2.6 billion.

Charles River Development is a privately held company headquartered in Burlington with offices in North America, Europe and the Asia-Pacific region. With total revenues of more than $300 million in 2017, its primary focus is providing solutions that automate front and middle office investment management functions across asset classes on a single platform.

The company has more than 300 clients across institutional, wealth, asset owner and alternative market segments, including 49 of the top 100 asset managers who in aggregate have more than $25 trillion in assets under management.

“State Street is an ideal partner for us as we share a common focus on helping clients achieve better investment outcomes,” Charles River Development CEO Peter Lambertus said in a statement. “We are excited about the opportunities ahead and what the combination of our two firms can do for the industry overall.”

When integrated with the company’s existing front, middle and back office capabilities, State Street said that Charles River Development’s front-office systems will enable it to deliver a global front-to-back platform for asset managers and asset owners that will be unique in the investment servicing industry.

This interoperable platform, supported by deep enterprise data management capabilities, will enable investment workflows, provide advanced data aggregation, analytics and compliance tools, and connect and exchange data with other industry platforms and providers.

“We are simplifying their own operation, lowering their cost and most importantly giving them access to data in a way they can inject back into their own investment process,” O’Hanley said.

“Today’s announcement represents an important milestone in our digital and technology transformation aimed at providing clients with differentiated solutions and data. This acquisition will also enable us to address a large adjacent $8 billion revenue pool for front office services,” Jay Hooley, chairman and CEO of State Street, said in a statement. “Clients today want solutions that can add value and achieve efficiencies from portfolio modeling and construction all the way through to custody as they face increasing complexity and regulatory expectations, and the need to manage costs and achieve product or geographic expansion.”

The acquisition is expected to be accretive to earnings in 2020, excluding acquisition and restructuring costs and based on anticipated revenue growth and cost synergies. The deal, which is subject to regulatory approvals and customary closing conditions, is expected to be completed in the fourth quarter of 2018.

State Street’s Shares Fall Following Acquisition

by Bram Berkowitz time to read: 2 min
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