Broadridge to Acquire Matrix - Analyst Blog

New York-based global outsourcing service provider Broadridge Financial Solutions Inc. (BR) inked a deal to acquire financial services provider Matrix Financial Solutions Inc. for a cash consideration of roughly $201.0 million. The deal is expected to close before the end of the calendar year.

Denver, Colorado-based, Matrix Financial Solutions provides back-office, trust, custody, trading and mutual fund settlement services to banks, trust companies, registered investment advisors and third-party administrators (TPAs). Matrix deals with approximately 500 mutual fund houses, provides services to more than 300 financial institutions and manages roughly $100.0 billion of investor assets.

The acquisition will provide Broadridge with a wider array of data and distribution channel solutions for its mutual fund clients. Moreover, the added capacity will boost Broadridge's product offering to banks, TPAs and other institutional clients. Matrix' expert advisors and rich customer-base will be an added advantage, which will lead to a solid return on investments for Broadridge.

Matrix is expected to generate approximately $80 million of revenue during the quarter ending December 31, 2010. However, Broadridge thinks the acquisition will have minimal impact on its GAAP net earnings for the remainder of Broadridge's fiscal year ending June 30, 2011. The company expects roughly 9 cents and 4 cents accretion to its non-GAAP and GAAP net earnings, respectively, during fiscal 2012.

We remain encouraged by Broadridge's acquisition spree, with the help of which the company is expanding its product portfolio and customer reach. Recently, Broadridge acquired NewRiver Inc., which strengthened its Investor Communication Solutions segment.

Despite the prospective synergies, which are expected to improve Broadridge's fundamentals, we are taking a cautious stand based on the company's first quarter earnings miss. We also believe that weaker market activity during the recession continues to impact the company's performance, which can be inferred from the dull fiscal 2011 guidance.

Additionally, Broadridge faces significant competition from companies such as HD Supply, DST Systems Inc. (DST) and State Street Corp. (STT), which has increased pricing pressures for the company. We believe that share prices will remain depressed until there is a positive turn in investor sentiment.

Currently, Broadridge holds Zacks #4 Rank, implying a short-term Sell recommendation.

 
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