Moody’s calls Franklin, Great-West deal a win-win

By James Langton | June 7, 2023 | Last updated on June 7, 2023
2 min read
Approved win-win

The recent strategic deal between U.S. fund manager Franklin Resources Inc., Power Corp. of Canada and Great-West Lifeco Inc. will likely benefit all sides, says Moody’s Investors Service in a new report.

On May 31, the firms unveiled a deal that will see Franklin acquire Great-West’s U.S. asset manager, Putnam Investments, for approximately US$800 million in stock and another US$100 million in cash. Additionally, Great-West agreed to invest US$25 billion in Franklin’s specialist fund managers, among other terms.

The deal will give Great-West approximately 4.9% of Franklin’s shares, which are subject to a five-year lock-up, and will pay approximately US$31 million in dividends per year, while fees on the investments with Franklin’s specialist managers “should contribute a similar amount of net margin to Franklin,” the rating agency noted.

“For Franklin, the strategic benefits of engaging with Great-West are attractive,” Moody’s said, noting that Great-West also owns Empower Financial, which had US$1.3 trillion of retirement assets and 71,000 retirement plans under administration as of the start of the year.

“By affiliating with Empower, Franklin and Putnam together can expect to increase their market share” in the defined contribution retirement channel, where it has not previously been considered a leader, the rating agency said, adding, “in combination the firms would have had nearly US$100 billion, a competitive market share, and a better balance of fund vehicles and asset types on offer.”

For instance, Moody’s said the deal will give Franklin capabilities in collective investment trusts, multi-asset funds (used in target date offerings), and stable value products.

And “the potential to realize cost synergies in the deal is considerable,” it said, noting that Franklin’s assets under management are more than 10 times larger than Putnam’s AUM.

“Putnam’s corporate and marketing operations will become redundant, leaving mainly the costs of its portfolio management and research,” it said, noting that Franklin expects to add approximately US$150 million in operating income in the second year after closing the deal.

“[T]he anticipated operating profit and margins will need to be derived from cost reductions and any operating leverage that may result from growing AUM and revenue,” it said.

Finally, Moody’s said the broader strategic terms of the deal “will reduce the execution risks of the merger because both sides are incentivized to increase Franklin/Putnam’s presence on the Empower platform.”

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James Langton

James is a senior reporter for and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.