Despite the fact mergers and acquisitions have gone dormant this year, deals are expected to surge in the next six months.
According to a report by Jefferies' Financial Institutions Group, a growing backlog of deals are expected to close over the next 12 to 18 months driven by independent sellers seeking liquidity after standing on the sidelines since the onset of the financial crisis.
“Looking forward to the second half of 2010 and into next year, we expect potential sellers, particularly independents, to be increasingly willing to engage in serious transaction discussions with buyers,” said Aaron Dorr, a New York-based managing director at Jefferies. “Earnings should improve, leading to stronger valuations and greater readiness by sellers to accept offers, but uncertainty regarding the global economic recovery will linger, driving the need for highly structured transactions.”
While last year saw record assets under management transacted despite a decline in the total number of deals, the first six months of this year has seen less activity. Only $437 billion in assets under management has been sold this year. These figures are in line with 2001, when just under $900 billion of asset under management was transacted.
By comparison, just below $2 trillion was transacted from 2006 to 2009.
Also, with 51 deals completed in the first half of this year, 2010 has thus far more closely resembled the early years of this decade when approximately 100 deals were announced on average annually.
By comparison, worldwide M&A activity across all industry sectors increased 4% in the first half of this year relative to the first half of last year, and 9% in terms of deal value.
According to Jefferies, the transaction environment will seek a "new normal" in the months ahead. Signs are already apparent, and Jefferies expects overall deal volumes will increase, independent asset managers will gradually return to the transaction landscape, investors will continue to increase their allocations to international portfolios and traditional fixed income, and Asian and emerging market buyers will join U.S. and U.K.-based pure-play asset managers as the predominant buyers of asset management businesses.
