Sullivan Does the Legg Mason Deal You Expected ... And Two More
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Friday, January 22, 2016

Sullivan Does the Legg Mason Deal You Expected ... And Two More

Joe Sullivan is following through on his deal-hunting talk. He just unveiled a trio of deals for Legg Mason [profile]: one deal in the ETF business, one in the hedge fund space, and one in real estate investing.

Joe Sullivan
Legg Mason
Chairman, Chief Executive Officer
This morning, as Legg released its quarterly earnings, Sullivan confirmed that Baltimore-based Legg will buy New York-based Clarion Partners. He also confirmed that Legg subsidiary Permal (based in New York and London) will merge with New York-based EnTrust Capital. And he confirmed that Legg has purchased a minority stake in Bedminster, New Jersey-based Precidian Investments.

Precidian, led by CEO Dan McCabe, builds ETFs and related technologies for other shops. It is notably working on an active ETF structure called ActiveShares.

Dan McCabe
Precidian Investments
The Legg-Precidian deal puts a new type of preferred equity in the hands of Legg, effectively giving Legg a 19.9-percent stake in the company along with an option to buy the whole kitten kaboodle. Pricing and terms of the deal were not disclosed.

"Precidian continues to be predominantly owned by the founding principals, in addition to a stake that's owned by Battery Ventures," Stuart Thomas, founding principal and chief operating officer at Precidian, confirms to MFWire.

Sullivan, chairman and CEO of Legg, praises Precidian as being "well known for its continuous innovation."

"They are the perfect partner to work with Legg Mason on product development in fast growing areas of the ETF market," Sullivan states.

Permal, led by CEO Omar Kodmani, is Legg's hedge fund platform. And Entrust, led by co-founder and managing partner Gregg Hymowitz, is a hedge fund and alternatives shop.

Omar Kodmani
Chief Executive Officer
Permal and EnTrust will combine to form a new shop, EnTrustPermal, with Legg owning 65 percent of the combination and Hymowitz himself owning the other 35 percent. EnTrust has about $12 billion in assets, while the combined EnTrust Permal will have more than $26 billion in AUM and more than 700 institutional accounts (plus high net worth investors), though Permal Capital Management will be separated out.

Hymowitz will become chairman and CEO of the combined EnTrustPermal firm. The deal is slated to close mid-year. Morgan Stanley advised Legg on the deal, while Goldman Sachs advised EnTrust.

Sullivan points out that EnTrust has grown annually by more than 20 percent "since the financial crisis" and describes the deal as a way to combine EnTrust's "proven track record for driving significant organic growth through product innovation ... with Permal's blue chip client base, product offering and global footprint."

Stephen Funary
Clarion Partners
Chairman, Chief Executive Officer
Word of the impending Legg-Clarion deal leaked earlier this month. Clarion is a real estate investment firm, once part of ING, with about $40 billion in assets. Clarion chairman and CEO Steve Funary will continue to lead the company.

Legg will pay $585 million for an 83-percent stake in Clarion, leaving 17 percent in the hands of Funary and the rest of the Clarion management team. Previous reports estimate Clarion's 2015 EBITDA as $70 million. Private equity shop Lightyear Capital currently owns a majority stake in Clarion, and it will sell that entire stake as part of the deal, which is expected to close next quarter.

Sullivan states that the Clarion deal "brings an important alternative asset class to [Legg's] portfolio of investment managers." And he praises "experienced management team at Clarion." For his part, Funary praises the deal as a way for Clarion to maintain "investing and operating autonomy."

Azrack & Company and RBC Capital Markets advised Legg on the deal, while Morgan Stanley advised Clarion.

The WSJ reported on the deals.

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