Goldman Sachs agreed to pay $750 million in cash to buy United Capital, a registered investment adviser with 220 wealth managers and $25 billion in assets under management.
The deal is the biggest for Goldman since its $6.5 billion purchase of Spear Leeds in 2000. It’s scheduled to close in the third quarter.
Goldman’s purchase is part of a push to bring in more stable revenue, which is valued more highly by Wall Street analysts and investors than the more episodic revenue that comes from trading and private investing activities.
The bank’s stock has lagged broader indexes, in part because of its reliance on the types of volatile businesses that investors discount.
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David Solomon is wasting little time.
The Goldman Sachs CEO, an investment banker who took over from Lloyd Blankfein last October, inked the bank’s largest deal in more than 15 years on Thursday, announcing the $750 million purchase of the United Capital wealth management firm.
The transaction is intended to fill in Goldman’s wealth offering and bring in more recurring revenue to a firm that still gets more than 60% of its top line from trading, and private investing activities.
More broadly, the deal is a sign that Solomon and his management team of CFO Stephen Scherr and President John Waldron recognize that investors haven’t given the firm credit for maintaining some of the highest returns in the industry, according to analysts.
Over the last 12 months, the bank’s share price has fallen 17%, compared to a 4.7% increase for the S&P 500 Index. The shares rose 1.6% today to $199.40 as of Thursday early afternoon.
“As the stock has underperformed despite solid ROEs, there is a realization the quality of earnings matters rather than the quantity,” Christian Bolu, an analyst at Autonomous Research, said in an interview before the deal was announced. “The sense of urgency has probably stepped up.”
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The deal is Goldman’s biggest since the firm’s 2000 purchase of Spear Leeds, done by another investment banker, Hank Paulson. That $6.5 billion deal was largely seen as a failure as trading began to move away from the floor of the New York Stock Exchange, one of Spear Leed’s specialties. Blankfein, a trader, steered clear of large acquisitions during his …read more
Source:: Business Insider