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Banking giant Morgan Stanley has confirmed the acquisition of publicly traded share plan management software company Solium Capital for $900 million in cash, per the FT.
Canada-based Solium is a global provider of Software-as-a-Service for stock administration, financial reporting, and compliance; it manages employee equity plans of over 3,000 companies — including startups like Stripe — which collectively have 1 million employees.
Morgan Stanley's stock-plan business serves 330 businesses with 1.5 million employees and is "geared toward" Fortune 500 companies, per The WSJ. The transaction is set to close in Q2 2019.
Although the C$19.15 ($14.42) price tag per Solium share might seem steep, representing a 43% premium to Solium's closing price on Friday, the acquisition could make strategic sense for the following reasons:
- Morgan Stanley will gain access to Solium's millennial employees. The acquisition is expected to enhance the bank's client acquisition efforts: Morgan Stanley is looking at Solium's young, salaried clients as the future affluent customers of its Wealth Management arm. Of note, Morgan Stanley's robo-advisory was launched in the end of 2017 and could service this pool of younger customers until they're wealthy enough to transition to its human advisory service. The banking giant is the world's third largest wealth manager in terms of assets under management, behind Credit Suisse and Bank of America Merrill Lynch. Notably, by 2030, millennials in North America are expected to control $20 trillion of global assets, according to a CB Insights survey.
- The deal will also grant Morgan Stanley access to Solium's technology. Although the US' largest banks have not been very eager to acquire fintechs, there's been an uptick in deals since 2017. Goldman Sachs acquired Final and Clarity Money to access their talent pools and fuel consumer banking growth plans, while JPMorgan Chase snapped up WePay to access its application programming interface (API) to power payments, for instance. Acquiring a tech-savvy startup will help Morgan Stanley become a part of the sector's ongoing digital transformation.
- The acquisition could offer good cross-selling opportunities. Morgan Stanley could offer additional services to Solium's clients, such as managing their spare cash or winning mandates to take successful startups public.
While the bank looks to organically grow its wealth management client base, it should consider upping its retail banking game to ensure customer loyalty. With Goldman Sachs' popular Marcus offshoot planning to launch a digital wealth management service, Morgan Stanley would do well to bring more banking products to market, such as a checking account, to fend off competition and do more business with its new tech-savvy customer base.
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