State Street to Snap up Brown Brothers’ Investor Services Business for $3.5B

Financial services company State Street Corporation (STT) recently announced that it has entered into a definitive agreement to acquire Brown Brothers Harriman & Co.’s (BBH) Investor Services business for $3.5 billion. The deal is likely to close by the end of 2021.

Following the news, shares of the company declined 3.7% on Tuesday to close at $89.43.

With this buyout, which includes BBH Investor Services’ custody, accounting, fund administration, global markets and technology services, State Street will gain access to the company’s almost $5.4 trillion in Assets Under Custody as of June 30, 2021. Further, the company’s cutting-edge data connectivity tools are expected to compliment State Street’s product mix and allow it to serve its customers more efficiently.

Notably, State Street expects the deal to be value accretive to its earnings per share (EPS) in the first year with a likely pre-tax margin of 31%. Further, the company anticipates fully phased-in expense synergies of $260 million and an EBIT of $40 million from estimated net revenue synergies in the third year.

The CEO of State Street Corporation, Ron O’Hanley, said, “This combination with BBH Investor Services helps us consolidate our position as the industry innovator and leader. Additionally, BBH Investor Services brings us strong talent, including industry leading service excellence and quality execution.” (See State Street stock chart on TipRanks)

Recently, Deutsche Bank analyst Brian Bedell reiterated a Buy rating on the stock with a price target of $120. The analyst’s price target implies upside potential of 34.2% from current levels.

The Wall Street community is cautiously optimistic about the stock with a Moderate Buy consensus rating based on 6 Buys and 4 Holds. The average State Street price target of $99 implies 10.7% upside potential from current levels.

State Street scores a “Perfect 10” from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations. Shares have gained 36.4% over the past year.