Legg Mason is making another acquisition expected to close sometime in July, this time Private Capital Management, based in Naples, Florida. While the Baltimore-based firm is not turning its back on its fund business, this deal is expected to double Legg Mason's separate account assets under managements.

Will Legg Mason leverage PCM's investment style for its mutual funds?

"Certainly we will give that thought, but with their growth rates still growing in the 30, 40, 50 percent area, the fear is that we mess up what they're doing because their ability to attract accounts is and remains strong," said Mason.

With an eye to the future, Legg Mason is fashioning its business to strengthen its presence in the third of its silos; in the fall of 1999, the firm acquired separate account shop Berkshire Asset Management. Already established in the institutional and mutual fund areas, wealth management represents less of a brass ring than a cornerstone to Legg Mason.

"[In the recent past] if you were an asset management that was principally a mutual fund company, you held the keys to the golden chair. As things began to change, the bloom came off that rose," said Raymond A. "Chip" Mason, chairman and ceo of Legg Mason. "The one thing we do believe is the real asset manager of the future will have the multi capability of institutional, both fixed income and equity, and multistyles, mutual fund capability, which will be critically important, and high net worth, which is probably the fastest growing segment at this time."

The deal will cost Legg Mason $682 million in cash at the time of closing as well as two additional payments contingent on third and fifth anniversary growth. The total price is capped at $1.382 billion.

"We have approxiamtely $150 million in what we consider to be excess cash," said Mason. "We would plan to go to market soon -- and when I say soon, it could be today, it could be tomorrow, it could be next week depending on the markets -- with an alliance type of product to raise up to probably $250 million. The balance of it we would anticipate going to the debt markets to raise. We don't anticipate a problem doing this." When the markets opened this morning, following Legg Mason's announcement of the deal yesterday at 6:30 pm, the firm began trading at less than 46, down from yesterday's close at 47.57.

PCM brings with it $8.2 billion in assets under management as well as long-term employment contracts for its two principals, chairman and ceo Bruce S. Sherman, and president Gregg J. Powers. According to Legg Mason, the added assets bring the percentage of wealth management assets from five to 10 percent and are expected to raise revenues from $31.0 million to $106.2 million.

PCM, co-founded in 1985 by Sherman and Miles Collier to manage money for the Collier family, has grown significantly over the last five years. As of the end of 2000, both revenues and assets under management have increased by around 50 percent annually. The firm specializes in small- and mid-cap value investments, providing double-digit returns over the last 15 years.

Presentation materials detailing Legg Mason's strategy for the acquisition are available on the firm's Web site.

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