Morgan Stanley’s Eaton Vance Acquisition Makes Waves

The move to acquire Eaton Vance, a provider of investment strategies and wealth management solutions, underscores Morgan Stanley’s goal to create a holistic advisory, investment management and brokerage shop.

Morgan Stanley and Eaton Vance Corp. announced Thursday that they have entered into a definitive agreement under which Morgan Stanley will acquire Eaton Vance.

Eaton Vance is a well-established provider of investment strategies and wealth management solutions, boasting more than $500 billion in assets under management (AUM). The deal has a reported equity value of approximately $7 billion.

According to the firm’s leadership, the acquisition advances Morgan Stanley’s strategic transformation with “three world-class businesses of scale” across institutional securities, wealth management and investment management. After the deal, Morgan Stanley Investment Management (MSIM) will be an even more sizable asset manager with approximately $1.2 trillion of AUM and over $5 billion of combined revenues. The firms say MSIM and Eaton Vance are “highly complementary, with limited overlap in investment and distribution capabilities.”

Specifically, Eaton Vance is billed as a market leader in key secular growth areas, including in individual separate accounts and customized investment solutions delivered through its Parametric brand. Eaton Vance also delivers environmental, social and governance (ESG) investing capabilities through Calvert. As a provider of value-add fixed income solutions, Eaton Vance fills product gaps and delivers additional established scale to the MSIM franchise.

The combination will also enhance client opportunities, according to the firms, by bringing Eaton Vance’s U.S. retail distribution together with MSIM’s international distribution.

“Eaton Vance is a perfect fit for Morgan Stanley,” said James P. Gorman, chairman and chief executive officer of Morgan Stanley, during a conference call announcing the deal early Thursday. “This transaction further advances our strategic transformation by continuing to add more fee-based revenues to complement our world-class investment banking and institutional securities franchise. With the addition of Eaton Vance, Morgan Stanley will oversee $4.4 trillion of client assets and AUM across its wealth management and investment management segments.”

Under the terms of the merger agreement, Eaton Vance shareholders will receive $28.25 per share in cash and 0.5833x of Morgan Stanley common stock, representing a total consideration of approximately $56.50 per share. Based on the $56.50 per share, the aggregate consideration paid to holders of Eaton Vance’s common stock will consist of approximately 50% cash and 50% Morgan Stanley common stock. The acquisition is subject to customary closing conditions, and is expected to close in the second quarter of 2021.

News of this major acquisition comes about eight months after Morgan Stanley grabbed headlines by announcing its intention to acquire E*TRADE in an all-stock transaction valued at approximately $13 billion. That announcement came on the heels of a record 2019 and a busy beginning to 2020 for financial services industry merger and acquisition (M&A) activity. Several important registered investment adviser (RIA)-focused transactions have also played out this year, while the biggest 2020 M&A news (at least in terms of assets in motion) has been the acquisition of Legg Mason by Franklin Templeton—a move that will eventually create a combined $1.5 trillion firm. 

The acquisition efforts at Morgan Stanley, in particular, have prompted industry analysts to ask whether such traditionally high-end brokerage firms are seeing the appeal of being able to serve the middle and mass affluent markets—perhaps thanks to the outsized success of Fidelity and Charles Schwab in recent years.