Franklin Templeton to acquire European credit manager Alcentra

Franklin Templeton has entered into an agreement to purchase Alcentra, Bank of New York Mellon Corp.'s European credit investment arm, in a deal valued at up to $700 million.

The transaction is expected to close in the first quarter of 2023, according to a joint news release from Franklin Templeton and BNY Mellon Tuesday.

Franklin Templeton will pay $350 million in cash at closing, and up to a further $350 million that is contingent upon meeting certain performance thresholds over the next four years, the news release said. Also, Franklin Templeton will purchase all seed capital investments related to Alcentra,the amount of which will be determined at the time of closing. As of March 31, seed capital investments were valued at about $305 million, the news release said.

The acquisition will double the worldwide assets under management of Franklin Templeton's alternative credit specialist unit, Benefit Street Partners, to $77 billion.

"Alcentra is highly complementary to our existing U.S. capabilities, with no overlap in Europe. This partnership will unlock new opportunities to offer broader global credit solutions to our clients who are increasingly allocating capital to this growing asset class," said Tom Gahan, CEO of Benefit Street Partners and head of Franklin Templeton Alternatives, in the news release.

A Franklin Templeton spokeswoman said in an email that because Benefit Street Partners has no presence in Europe, they plan to continue to use the Alcentra name after it is combined with Benefit Street Partners.

BNY Mellon will continue to offer asset servicing support to Alcentra following the closing of the deal and will continue to use Alcentra in the firm's subadvised funds, the news release said.

As of March 31, Benefit Street Partners and Alcentra had $39 billion and $38 billion, respectively, in AUM.

BNY Mellon had been in talks with a range of buyers since at least January, with private equity firm KKR & Co. and PGIM, the asset management unit of Prudential Financial Inc., among the potential suitors, according to people familiar with the matter at the time.

Alcentra specializes in alternative credit investments across leveraged finance, private credit and special situations. The London-based firm, led by CEO Jon DeSimone, has more than 180 professionals working for the business globally. It's particularly well known for its direct lending and collateralized loan obligation businesses.

"As part of the transaction, we are implementing a four-year retention program to retain key personnel," the Franklin Templeton spokeswoman said. "The retention program has been structured to provide continuity and a strong alignment of interests, and to incentivize key members of the Alcentra team. As with any acquisition, the close and integration will take time and careful consideration. Decisions regarding headcount or changes in roles or responsibilities will be made in due course."

As of April 30, Franklin Templeton has a total of about $1.5 trillion in AUM, and BNY Mellon had $2.3 trillion in AUM as of March 31.

BNY Mellon spokesman Stan Neve could not be immediately reached for further information.

Bloomberg contributed to this story.