Morgan Stanley wants to win the hearts and minds of startup employees.
The Wall Street firm on Monday announced the $900 million purchase of Solium Capital, which runs a platform for keeping track of the stock awards and options that typically make up a big part of the pay that startup employees receive. The bank is betting that it can take those clients and successfully convert them into wealth management clients, serving them first through digital offerings and then later with financial advisers.
The Solium service is already used by many fast-growing private companies like Stripe, Instacart, and SpaceX, as well as some newly public ones and more established companies. Solium has 3,000 stock-plan clients covering 1 million participants.
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The purchase gives Morgan Stanley “a greater opportunity to establish and develop relationships with a younger demographic and service this population early in their wealth accumulation years,” CEO James Gorman said in a statement. In the early years, those with less wealth will be directed to Morgan Stanley’s web-based channels.
It’s easier said than done, according to analysts. The firm hasn’t always been successful converting clients of its own stock-plan service into wealth management clients, Keefe, Bruyette & Woods analyst Brian Kleinhanzl said. Evercore ISI analyst Glenn Schorr wrote that’s “the tougher part” of the deal.
Devin Ryan, an analyst at JMP Securities, said an effort to market wealth management capabilities to clients of Morgan Stanley’s stock-plan service is still in its early stages. Even so, marketing to corporate stock-plan participants counts as “one key leg of the growth initiative” within wealth management, Ryan wrote in a report following the deal.
In the past, when Morgan Stanley didn’t focus on marketing to stock-plan participants, “when shares would vest and be sold, the majority of instances would see those cash proceeds transferred out of the firm to other accounts,” Ryan wrote. “However, with new capabilities and a concerted effort internally, Morgan Stanley has been recently quite focused on retaining those proceeds, and cultivating a long-term relationship.”
Ryan once estimated that if Morgan Stanley can reach a 50% market share with the 1.5 million participants of its stock planning service, it could mean $500 billion in new assets and hundreds of millions of dollars in new revenue. The Solium purchase, which contributes another 1 million participants, only adds to that, he said.
Morgan Stanley isn’t alone in going after company employees. Arch-rival Goldman Sachs has also been looking at ways it can work with employees through its Ayco unit, which has historically served corporate C-suite execs with financial planning, tax and compensation advice, life insurance and investment planning. Ayco recently debuted an online offering it designed to serve all employees and it’s begun thinking about how to offer savings, lending or investment products to those employees.
The Solium acquisition, Morgan Stanley’s biggest since the financial crisis, came at a 43% premium to the smaller firm’s share price and won’t meaningfully impact the bank’s earnings or capital.
Gorman has said the firm would like to do more acquisitions, though he told investors last month that the firm was looking in the asset management space to bring that business up to scale.