Franklin Templeton to buy Lexington Partners

The financial services holding company, which has $1.5trn in AUM, is paying $1.75bn for one of the largest remaining independent secondaries firms.

One of the largest secondaries shops in the world is to be sold, bringing an end to fevered speculation around its future.

Lexington Partners is being acquired by Franklin Templeton, bolstering the financial services holding company’s alternatives capabilities at a time of increasing investor appetite, it said in a statement.

Franklin Templeton is paying $1.75 billion for a 100 percent stake in the secondaries firm, comprising $1 billion at the deal’s close and $750 million over the next three years, the statement said. The current management team will remain in place.

“Adding Lexington’s leading private equity expertise alongside the real estate strength of Clarion Partners, the private credit capabilities of Benefit Street Partners and the hedge fund offerings of K2 Advisors provides Franklin Templeton with a substantial and diverse alternative asset platform,” said Tom Gahan, head of alternatives at Franklin Templeton.

Lexington’s partners and employees will be granted a 25 percent ownership stake vesting over five years and $338 million of performance-based cash retention awards to be paid out over the same period.

“This transaction provides for long-term continuity and stability for our investors, management team and employees,” said Lexington president Wil Warren in the statement.

The deal is expected to close at the end of the second fiscal quarter of 2022, pending regulatory approvals.

Lexington is a pioneer of the secondaries industry, having raised its debut fund in 1996. It has committed more than $55 billion across secondaries and co-investment funds, according to the statement.

The firm is in market with Lexington Capital Partners X, targeting $15 billion, which would make it the largest secondaries fund yet raised. It ranked sixth in the SI 50, affiliate title Secondaries Investor‘s latest ranking of the largest fundraisers in secondaries over a five-year period.

The acquisition will bring Franklin Templeton’s alternatives assets under management to approximately $200 billion, the statement said. The holding company has more than $1.5 trillion in assets under management across equities, fixed income, alternatives and multi-asset solutions.

It is understood that Lexington Partners has been in talks over a possible sale since at least the start of 2021. As recently as September it was linked to a possible sale to KKR, according to the Wall Street Journal.

A flurry of M&A activity in 2021 means there are few independent secondaries shops left. Landmark Partners, Glendower Capital and Montana Capital Partners are among the firms to have been snapped up.

In September, Secondaries Investor reported that another of the largest independent players, Coller Capital, had approached buyers over a prospective sale.

This article first appeared in affiliate publication Secondaries Investor