Monday, February 11, 2019

FinTech News: Morgan Stanley made its biggest deal since the financial crisis and it wants to do more

Morgan Stanley announced on Monday that it would buy Canadian fintech firm Solium Capital for $900 million (it will pay $19.15 Canadian per share)

·         Morgan Stanley CEO James Gorman told The Wall Street Journal he'd like to "do more" acquisitions. "Last year was the first time we felt comfortable that we could even consider" acquisitions.

According to Finimize, Solium manages employee stock plans for a million people at 3,000 companies, including Instacart and Levi Strauss. Employees – especially those at startups – often get compensated with a piece of the company pie along with a paycheck. The various options and taxes involved can get complicated – which is where Solium’s software comes in.

Morgan Stanley already has 320 companies signed up to its own version of Solium, but this principally deals with top executives at large businesses, whereas Solium’s more millennial-focused. That’s no coincidence...

According to Finimize, Morgan Stanley is playing the long game. Startup employees can get rich overnight – if their company gets acquired or goes public, for example. And what are these employees to do with the wads of cash in their hot little hands? If they’re savvy Finimize readers, they’ll probably want to invest – and Morgan Stanley can help them do just that, for a tidy fee. According to FactSet, 44% of the bank’s revenue comes from “wealth management” – a.k.a. investing rich people’s money. If Morgan Stanley already looks after your employee stock plan, you might be more likely to invest with them too.

Morgan Stanley’s stock fell 1% on Monday. It’s paying a hefty 43% premium for Solium, valuing the company at more than seven times its sales over the last year – compared to Solium’s peers’ average valuation of two to three times sales (tweet this), according to FactSet. 

Investors are likely worried that Morgan Stanley’s blockbuster plan won’t play out as hoped. Banking rival Goldman Sachs might disagree: it’s expanding its tax advisory business down the employee ranks, likely hoping to similarly curry favor with the future rich.