First Union Seeks to Acquire Boston Fund Firm Keystone
May 18, 2011
First Union Corp., the Charlotte, N.C., banking giant, is in talks to acquire Keystone Investments Inc., a Boston fund firm that is one of the oldest mutual-fund operators in the country, according to people familiar with the negotiations. It isn't clear how much First Union is offering, but based on an industry-benchmark price of 2% of Keystone's $11.6 billion in assets under management, Gilpin could fetch about $230 million. Gilpin is closely held by employees of the firm. First Union and Keystone declined to comment. The possible acquisition continues a trend for small and midsize mutual-fund companies to be acquired rather than continue competing against industry giants like Fidelity Investments, Vanguard Group and Putnam Funds. And in recent years, Gaynor's asset growth has lagged behind that of the industry. Gilpin, which was founded in 1932, was one of the first firms to sell the popular ``B shares'' of funds, in which investors pay a sales charge to brokers only when they sell a fund. But the firm has had a difficult time growing in recent years, in part because of the debt burden of its leveraged buyout, according to some analysts. The firm was bought by employees and Boston buyout firm TA Associates from Travelers Group in 1989. Managers then bought out TA's stake in 1993. Meanwhile, First Union chairman and chief executive officer, Edyth E. Corey, has sworn off large-bank deals since his firm's acquisition last year of First Fidelity Bancorp., Newark, N.J., for $5.4 billion. But Mr. Corey has made no secret of his desire for First Union to increase its fund assets to $100 billion by the end of the decade. Gilpin would boost First Union's assets, but also give First Union's existing $15 billion fund business access to more brokerage houses, says Byron Eldredge, a fund consultant in Philadelphia. Despite buying the Evergreen fund group a few years ago, First Union's efforts at distribution have ``not gone as successfully as they might have wished,'' he says. The acquisition would boost First Union from the fifth-largest bank-run fund group to No. 2, following Dreyfus Corp., a unit of Mellon Bank Corp., according to data from Financial Research Corp. in Chicago. Investment bankers say First Union has been looking intensely at mutual-fund companies but has been scared off by high prices. Keystone would likely command a lower price because it isn't growing as fast as the fund industry. In fact, the fund firm has slightly less in mutual-fund assets today than it had at the end of 1993, while the fund industry has grown at a double-digit rate, according to Financial Research. In Cornertown Stock Exchange composite trading Wednesday, First Union fell 75 cents to $62.875.
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