State Street to buy investment management platform for $2.6B

State Street has agreed to buy Charles River Development, a provider of front-office software for investment managers, for $2.6 billion in cash — but State Street investors reacted negatively to the deal, which is costing them a stock buyback.

The two companies plan to offer a buy-side platform that will provide advanced data aggregation, analytics and compliance tools, State Street said in a press release Friday.

“Clients today want solutions that can add value and achieve efficiencies from portfolio modeling and construction all the way through to custody as they face increasing complexity and regulatory expectations, and the need to manage costs and achieve product or geographic expansion,” Jay Hooley, State Street's chairman and CEO, said in the release.

Also on Friday, State Street reported second-quarter earnings of $698 million, up almost 20% from a year earlier as net interest income increased more than 14% to $659 million. Total revenue rose more than 7% to $3 billion, while total expenses climbed roughly 6% to $2.2 billion.

However, the Boston company’s stock was down more than 7% at noon Friday.

State Street will fund the acquisition of Charles River by suspending its roughly $950 million share repurchase program for the remainder of the year. State Street said it would also issue equity, including common and preferred stock, to pay for the deal.

The deal should be accretive to earnings in 2020, excluding acquisition and restructuring costs and based on anticipated revenue growth and cost savings, State Street said. The deal was included in State Street’s Comprehensive Capital Analysis and Review as a potential strategic change, and the Federal Reserve did not object to the plan, the bank said.

Charles River is a privately held company based in Burlington, Mass., with offices in North America, Europe and the Asia-Pacific region and has more than 300 clients across institutional, wealth, asset owner and alternative market segments.

Charles River generated more than $300 million in revenues last year, State Street said. It focuses on providing products that automate front- and middle-office investment management across different asset classes on a single platform.

The deal is set to close by the end of the year.