Mellon Bank Corp., Pittsburgh, signed a letter of intent to acquire Buck Consultants Inc., New York.
Terms weren't disclosed, but knowledgeable sources put the price tag around $200 million, or roughly equal to Buck's revenue of $197 million for its fiscal year ended March 31, 1996.
Buck, the seventh largest benefits consultant in the United States, will become a Mellon subsidiary and will retain its independence, officials of both companies said. Buck Consultants will keep its name.
W. Keith Smith, vice chairman of Mellon Bank, said the goal is to make Mellon a leader in corporate benefits outsourcing.
Mr. Smith noted Mellon already had provided defined contribution plan services, which he said was one of three arms of benefits outsourcing. By purchasing Buck, he said, Mellon gains expertise in the other two areas - defined benefit plan and health and welfare benefits administration.
"We're finding that corporations more and more want one service provider to take over the administration of all three aspects of employee benefits. We felt we needed to develop the second and third tiers of that (range of capabilities), and the merger with Buck provides us with that," Mr. Smith said.
Buck also is known for such other services as actuarial and compensation consulting, he said. Buck, privately owned, has 65 offices in 16 countries.
Mellon said in a statement that it expects to retain all Buck employees after the acquisition "and to add to total employment as the growth of the combined companies accelerates."
Serious discussions between the two parties began last spring, officials said. But as late as November, Joseph LoCicero, Buck's president and chief executive officer, told Pensions & Investments that despite rumors to the contrary, sale of the firm was not being pursued.
The expected Buck-Mellon union is seen as a benefit to both partners. Joseph Duwan, senior vice president and bank analyst with Keefe Bruyette & Woods Inc., New York, the relationship comes at a time when "more and more corporations are outsourcing their employee benefits programs." The deal, he added, provides cross-marketing opportunities for both partners, and among other attractions, "makes it easier (for Mellon) to sell asset management services."
But at least some observers wonder how much pension clients would benefit. "While this (deal is attractive) from a product-sales standpoint - to provide a consulting wrap on investment products - the problem with a Buck and Mellon (liaison) is that the client loses the independent appraisal and (can) end up with advocacy of the product line of (the consultant's) parent company," said David Kudish, principal and president, Stratford Advisory Group, Chicago. "For plan sponsors, there is the potential for significant loss of independence and perspective by its consulting firm."
Following the announcement of the deal, Mr. LoCicero said Buck agreed to be purchased because "long term, (we) do need substantial resources and backing to be a good supplier of outsourcing and administration services." He added the deal "gives us the ability to compete for more market share." (As part of the purchase, Mr. LoCicero will become a member of Mellon's senior management committee.)
Prior to the announcement of the sale to Mellon, Buck had been working on - and this year plans to introduce - what is being billed as a fully integrated state-of-the-art benefits administration system.
It would merge "all different types of benefits programs into one system and in one database," Mr. LoCicero said.
Just recently, Buck acquired WF Corroon, the employee benefits and compensation consulting unit of Willis Corroon Group PLC, headquartered in London.
The Mellon-Buck liaison comes after other mergers, acquisitions and alliances in the consulting business, including the alliance between what was R. Watson & Sons in the United Kingdom and American-based The Wyatt Co., and Berkeley, Calif.-based BARRA Inc.'s purchase of RogersCasey of Darien, Conn.
Deals between bank companies and consultants also have been more frequent. Northern Trust Co., Chicago, acquired Hazlehurst & Associates Inc., Atlanta, in late 1994, and in late 1995, Boston's State Street Bank announced it was acquiring Watson Wyatt Worldwide's daily valued defined contribution plan service center in Minneapolis and State Street would license Watson Wyatt's record-keeping software system, WYSTAR.
But William J. Crerend, chairman emeritus of Evaluation Associates, Norwalk, Conn., believes the pairings between consultants and financial firms don't yet constitute a trend. That's because such mergers, while beneficial in some cases, "are not a clear positive." One issue he cited: "the potential for conflict of interest" if, for example, a consultant's parent owns a money management firm. The question, he and some others suggest, is whether a consultant might feel some pressure to recommend the parent's money manager to a client.
Early last week, Buck client, Paul Bealesso, financial manager at Bechtel Petroleum Operations Inc., Tupman, Calif., said he had "not dealt with Mellon Bank and was not familiar with the scope of their expertise."
Nonetheless he sees Buck as a "top-notch firm, and we're happy with what we have gotten from them" - although he would "have to look into this" transaction. Buck is a consultant for $60 million of employee benefits for the company, he said.
According to the 1996 Money Market Directory of Pension Funds and their Investment Managers, representative clients of Buck besides Bechtel Petroleum are American Kennel Club, Canon U.S.A. Inc., A.V. Hunter Trust Inc., National Academy of Sciences, Ohio Valley Hospital and Parsons Brinkerhoff Inc.