Asset manager Legg Mason Inc said it will buy privately held QS Investors and merge it with two other business units, aiming to build sales to institutional clients and retail investors.
The deal announced on Tuesday marks an early expansion step by Legg Mason Chief Executive officer Joseph Sullivan, who took over last year and said he would consider acquisitions as a way to grow the Baltimore fund company.
The deal, Sullivan said on a conference call with analysts, "is entirely in keeping with what I have said many times, namely that we intend to have fewer and larger affiliates to brand and to market."
With $680 billion under management at the end of January Legg Mason is one of the largest fund firms, but has struggled to end withdrawals of cash by investors since the financial crisis.
New York-based QS Investors has $4.1 billion assets under management and about $100 billion in assets under advisory, Legg Mason said in a statement.
Legg Mason said the deal will result in restructuring costs of about $35 million and will add to earnings in 2015. Other terms of the deal, which is expected to close in the first fiscal quarter of 2015, were not disclosed.
Sullivan said the deal will have no impact on Legg Mason's ability to buy back shares.
The agreement will result in an unspecified number of layoffs, Legg Mason spokeswoman Mary Athridge said, as two other Legg Mason businesses, Batterymarch Financial Management and Legg Mason Global Asset Allocation, are combined with QS Investors.
QS Investors mainly serves institutional clients, but Sullivan said he hopes to make some of its strategies available to retail investors as well. The unit will eventually have a management equity plan in place, he said, as Sullivan is moving to create at other Legg Mason units.
QS Investors was once a unit of Deutsche Bank AG and was spun out in 2010. The firm's chief executive, Janet Campagna, said on the conference call the deal would help in areas like sales. "We needed a strong global distribution partner," she said.
Shares in Legg Mason were up 3 percent to $46.54, in line with other fund companies.
(Reporting by Tanya Agrawal in Bangalore, Ross Kerber in Boston; Editing by Rodney Joyce and Phil Berlowitz)