At the end of May 2023, Canadian insurer Great-West Life announced the sale of Boston-based Putnam Investments to Franklin Templeton for a consideration of US$ 925m in stocks and cash, plus another US$ 375m if defined revenue growth targets are met.
The transaction will combine two of the largest asset management firms in the US and will make Great-West, a subsidiary of Power Corporation of Canada, a 6.2% shareholder of Franklin Templeton. The deal, which excludes US$ 33bn investment manager PanAgora, is aimed at creating a strategic partnership between the two parties in areas such as defined contribution plan assets or mutual funds and will add US$ 136bn to Franklin Templeton’s US$ 1.42trn in assets under management. Great-West said they plan to invest US$ 25bn with Franklin Templeton within a year after the deal closes, and more in subsequent years.
While the CEOs of Franklin Templeton and Great-West, Paul Mahon and Jenny Johnson, were unsurprisingly sanguine about the strategic benefits of the transaction, industry analysts have not shared their enthusiasm so far, with some commentators saying the deal was more about distribution than asset management. Shares of Franklin Resources came down 75 cents to US$ 23.97 after the announcement.
Historically, the outcome of mergers or strategic partnerships between insurance companies and asset managers has been a mixed bag. The success of the Putnam deal will depend to a large part on careful planning and execution of the post-deal integration, as well as the choice of the overall integration approach. Clear identification of synergy effects and the respective tracking of measures to achieve those are crucial for a successful integration and related positive economic results.
To fully leverage the expected cost synergies through classical measures such as product portfolio consolidation or staff cost reduction, Franklin will need to dig deep and follow an absorptive model, which will be complex, painful and potentially lead to frictions between the two organisational cultures. In contrast, a symbiotic approach, which would merely change some reporting lines while leaving not just the Putnam brand but also the organisation and its processes and systems largely intact, will hardly do the trick. Since post-merger integration processes have their own dynamics, Franklin only has a narrow window to get it right – the clock is ticking.