Computershare to Acquire BNY Mellon Shareowner Services
On April 27, 2011 Computershare announced it will acquire BNY Mellon Shareowner Services, subject to regulatory approval. As frequent visitors to this site have read over the years, the number of transfer agents operating in the U.S. today is shrinking steadily. The magnitude of this latest reduction, however, dwarfs all others.
According to recent estimates, the six largest U.S. transfer agents have these market shares:
| Agent | Number of Registered Shareholders |
Number of Corporate Clients |
|---|---|---|
| BNY Mellon | 31,000,000 | 2,100 |
| Computershare | 16,200,000 | 2,750 |
| Wells Fargo | 8,400,000 | 875 |
| American Stock Transfer | 3,500,000 | 2,800 |
| Continental Stock Transfer | 2,000,000 | 1,000 |
| Registrar & Transfer | 1,000,000 | 1,000 |
| 62,100,000 | 10,525 |
Within these populations of data the combination of BNY Mellon and Computershare will give the new company 47,200,000 out of 62,100,000 shareholders, or 76%, and 4,850 out of 10,525 clients, or 46%. The total number of registered shareholders in the entire U.S. is less than 70 million, which means Computershare/BNY Mellon will serve approximately two thirds of the U.S. market in that regard; and, the total number of public companies in the U.S. is around 14,000, so from that standpoint Computershare/BNY Mellon will serve approximately one third of the market. These are huge pieces of the pie, and no agent operating in the U.S. has ever approached this kind of market presence!
Surprising? Not when one considers that Computershare is already by far the largest stock transfer agent in the world, serving over 100 million shareholders and 10,000 corporate clients as #1 or #2 in markets like Canada, the U.K. and Australia – besides the U.S. And, adding BNY Mellon’s U.S. business will make it 20 – 30% bigger even in global terms!
Frankly, it was always Computershare’s goal to be the largest agent in the premier U.S. market, ever since it got its first toe-hold here with the acquisition of medium-sized Harris Bank’s business in 2000. It took 11 years, watching Bank of New York merge with Mellon in 2007 to leapfrog its own merger with Equiserve in 2005, and seeing American Stock Transfer and Wells Fargo snag new business at a pace that appeared to exceed Computershare’s – but, #1 in the U.S. has finally been accomplished, through the largest stock transfer acquisition in history.
And the cost? $550 million, which we gather will come from a fairly equal combination of Computershare borrowings and available cash. We have heard there is a $30 million deal cancellation fee that Computershare would have to pay BNY Mellon if regulatory approval is not granted (essentially for anti-trust reasons); but, we consider that unlikely because the U.S. Department of Justice and Federal Trade Commission tend to lump transfer agents among all shareholder record keepers in deals like these, including stockbrokers, and there are dozens of these like Schwab and E-Trade that take care of roughly 350 million additional, “beneficial” shareholders in the U.S.
In terms of relative cost, this deal is somewhat expensive for Computershare at close to 2x BNY Mellon’s annual revenue, we have heard, while past stock transfer business acquisitions have been closer to 1x revenue. However, to competitors or analysts who might smirk at this expense, we ask “What other large, premium books of business were left and available out there to buy? How and where else could a major player like Computershare become the dominant service provider in the U.S. in one simple stroke?” The answer is “Nowhere.” So, we take our hats off to Computershare. This might be the largest accretion of stock transfer business in the U.S. for years – possibly decades – to come. And, with upwards of $70 million in annual cost saving synergies we heard this transaction may yield in the near term, Computershare could, despite the hefty price tag, wind up laughing all the way to the bank.
If there are potential casualties in all this they are corporate issuers and registered shareholders, who will have one less major player to offer up service, and competition. Computershare will, of course, spin the deal as a way for it to mitigate its costs through increased “scale,” which savings it will allegedly pass back to clients; as a way for it to cherry-pick the best people, systems and procedures from BNY Mellon, for the benefit of all future consumers of its products; etc. However, at the end of the day we feel the significant loss of competition trumps any of these “benefits.”
But, there may also be a silver lining here because, as we all know, we occupy the largest, most innovative and competitive marketplace in the world, and the remaining transfer agents – including Broadridge, which is in its own nascent climb to significance within stock transfer – will undoubtedly try to “outmaneuver” Computershare in terms of service responsiveness, technological solutions and price; so, it will remain a very interesting industry to watch as the future unfolds. We trust you will watch it with us.