Acquisition

12 Months Ended

Sep. 30, 2021

Legg Mason, Inc.

On July 31, 2020, the Company acquired all outstanding shares of Legg Mason, Inc. (“Legg Mason”) common stock for a purchase consideration of $4.5 billion in cash and $0.2 billion related to the settlement of historical compensation arrangements. Legg Mason had outstanding debt with an aggregate principal amount due of $2.0 billion on the acquisition date. The acquisition of Legg Mason, a global investment management organization, established the Company as of one of the world’s largest independent, specialized global investment managers, significantly deepened the Company’s presence in key geographies and created an expansive investment platform that is well balanced between institutional and retail client AUM. The EnTrust business was acquired by its management concurrent with the closing of the acquisition.

The initial and revised estimated fair values of the assets acquired and liabilities and noncontrolling interests assumed were as follows:


(in millions)	Initial Estimated Fair Value		Adjustments		Revised Estimated Fair Value
as of July 31, 2020
Cash and cash equivalents	$	681.1	$	—	$	681.1
Cash and cash equivalents of consolidated investment products	253.4		—		253.4
Investments	471.8		—		471.8
Investments of consolidated investment products	402.9		—		402.9
Receivables	525.7		—		525.7
Indefinite-lived intangible assets	2,727.8		—		2,727.8
Definite-lived intangible assets1	1,353.8		—		1,353.8
Goodwill	2,325.0		(52.4)		2,272.6
Deferred tax assets	148.4		57.6		206.0
Other assets	530.7		—		530.7
Debt	(2,324.4)		—		(2,324.4)
Debt of consolidated investment products	(330.8)		—		(330.8)
Compensation and benefits	(579.9)		—		(579.9)
Deferred tax liabilities	(315.4)		0.9		(314.5)
Other liabilities	(926.4)		(6.1)		(932.5)
Redeemable noncontrolling interests	(186.4)		—		(186.4)
Nonredeemable noncontrolling interests	(20.1)		—		(20.1)
Total Identifiable Net Assets	$	4,737.2	$	—	$	4,737.2

______________

1Includes $1,123.2 million related to management contracts and $230.6 million related to trade names.

The adjustments to the initial estimated fair values are a result of new information obtained about facts that existed as of the acquisition date. The goodwill is primarily attributable to expected growth opportunities and synergies from the combined operations and is not deductible for tax purposes.

The intangible assets relate to acquired investment management contracts and trade names. Indefinite-lived intangible assets represent contracts for which there is no foreseeable limit on the contract period. Definite-lived intangible assets are amortized over their estimated useful lives, which range from 5.0 years to 7.0 years for those related to the contracts and 5.0 years to 20.0 years for those related to trade names. The definite-lived intangible assets related to the contracts and trade names had estimated weighted-average useful lives of 5.9 years and 14.5 years, respectively, at acquisition.

The Legg Mason debt was recorded at fair value on acquisition-date and included a premium of $324.4 million.

Transaction costs incurred in connection with the acquisition were $6.7 million and $57.4 million in fiscal years 2021 and 2020. These costs were primarily comprised of professional fees, recorded in general, administrative and other expenses. The Company also incurred $13.0 million and $119.6 million of acquisition-related compensation and benefits expense in fiscal years 2021 and 2020, primarily related to the acceleration of expense for historical Legg Mason compensation arrangements and retention bonuses.

Revenue and net income (loss) of Legg Mason included in total operating revenues and net income attributable to Franklin Resources, Inc. in the accompanying consolidated statements of income were $1,500.8 million and $291.4 million for the six month period ended March 31, 2021 and were $475.7 million and $(28.7) million from the acquisition date through September 30, 2020. Due to the continued integration of the combined businesses, it is no longer practicable to separately report total revenue and net income of Legg Mason for periods subsequent to March 31, 2021.

The following unaudited pro forma summary presents combined results of operations of the Company as if the Legg Mason acquisition and concurrent divestiture of EnTrust business had occurred on October 1, 2018. The pro forma adjustments include acquisition-related costs, adjustments to intangible amortization expense, and interest expense related to debt assumed. These pro forma results are not indicative of future results of operations that would have been achieved nor are they indicative of future results of operations of the combined entity.


(in millions)
for the fiscal year ended September 30,	2020		2019
Revenues	$	7,862.0	$	8,436.0
Net Income Attributable to Franklin Resources, Inc.	967.5		886.6