Asset management mergers and acquisitions are on the rise and all signs are pointing to another healthy year for deal activity.
Earlier this month, investment bank Sandler O'Neill + Partners revealed that there were 32 deals announced in the second quarter, 22% fewer than the prior quarter, but slightly ahead of the second quarter of 2012. Despite the second quarter slowdown, 73 deals were announced in the first half of 2013, a 10% increase over the first half of last year.
Specifically, divestitures accounted for 50% of transactions in the second quarter, according to the bank. Notably, nine banks disposed of their asset management operations in whole or in part, including Banco Santander's sale of a 50% stake in Santander Asset Management to U.S.-based private equity firms Warburg Pincus and General Atlantic. The acquisition, along with a 10-year distribution agreement with Banco Santander, valued the asset manager at over $2.6 billion.
All told, alternative investment firms played a big part in M and A transaction activity in the second quarter accounting for 34% of announced transactions. The mix of target types, however, differed from the prior quarter, as deals involving real estate managers were up markedly while sales of fund-of-hedge-fund and collateral loan obligation managers dropped considerably, according to Sandler O'Neill.
"We expect that M and A activity will remain steady and reflect gradual growth in the second half of 2013 and into 2014, as global markets steady in the eventual tapering of central bank-funded market liquidity," wrote Aaron Dorr, head of Asset Management Investment Banking, and Christopher Browne, managing director of Asset Management Investment Banking, in their latest commentary.
"As fundamental growth in developed countries continues to improve, buyers will expand their wish lists and increasingly look to put excess capital to work. Divestitures will also continue to play a meaningful role in deal activity, supported by private equity sponsors looking to offload ownership stakes acquired prior to 2008."
M and A boutique advisory firm Freeman and Co. last month reported that 51 asset management deals were announced globally in the first four months of 2013, representing a 12% annualized increase over 2012 and marking the second year of double-digit growth in deal activity.
"Private equity firms are focused on becoming asset managers; large long-only and traditional managers are becoming multi-asset solutions providers; and other creative asset managers are focused on defining a niche," said Eric Weber, managing director at Freeman and Co.
"As these firms converge, we could see as many as 150 asset management transactions in 2013."
Indeed, private equity firms were actively buying and selling their asset management assets in the first half of the year. Notably, New York-based Crestview Partners, which earlier in the year partnered with members of the management team of Victory Capital Management to acquire Victory from KeyCorp for $246 million, is reportedly shopping Munder Capital Management, a Birmingham, Mich.-based mutual fund company, for $400 million.
Crestview has hired Goldman Sachs Group to assist in the sale. The private equity firm bought Munder from Comerica Inc. in 2006 for $302 million in a leveraged buy-out deal. Munder currently manages eight mutual funds with some $7 billion in assets.
In March, New York-based Aquiline Capital Partners and San Francisco-based Genstar Capital announced that they had reached an agreement to acquire Genworth Financial Wealth Management and Altegris, an alternative mutual fund shop, from Genworth Financial. The deal was worth about $412.5 million.
One month earlier, Washington, D.C.-based The Caryle Group took majority ownership of the TCW Group from Société Générale for about $700 million, according to published reports.
Not to be left out, hedge funds also bought their way into the '40 Act space. Last month, hedge fund shop Arrowpoint Partners agreed to buy Aster Investment Management, the advisor to the Meridian Growth, Meridian Value and Meridian Equity Income mutual funds, which managed some $2.9 billion in assets.
Robert Ficarro, a fund administrator at Aster, told Money Management Executive that the funds have resided in a trust since the passing of founder Richard Aster last yearof the Larkspur, Calif.-based Aster Investment Management and "needs a home."
"The trust is not in the business of running mutual funds and didn't want to be in the mutual fund business," he said.
On the flip side, traditional mutual funds expanded their lineups by buying into the alternative investment space. Notably, Franklin Resources in June acquired the remaining 80% stake of alternative investments specialist Pelagos Capital Management. Franklin Resources acquired its initial 20% equity stake in the Boston-based alternative investment shop in 2010.
Pelagos' commodities and managed futures strategies are currently available as underlying investments within the Franklin Templeton Multi-Asset Real Return Fund (FRKMARR), the Franklin Templeton Allocator Fund Series (FTMTX), and Franklin LifeSmart Retirement Target Funds.
Franklin also made headlines last September for its high-profile acquisition of the $9.3 billion fund-of-hedge-fund shop K2 Advisors from private equity shop TA Associates.
There were also a few notable strategic buys during the first half of the year including Nationwide Financial's buy of 17 equity and bond mutual funds from HighMark Capital Management, a wholly-owned subsidiary of Union Bank, in April.
Michael Spangler, president of Nationwide Funds, told Money Management Executive that his firm was attracted to HighMark's funds because of their "product breadth and quality."
"They have a wide range of investment offerings for advisors and their clients. These funds are very core and align well with what we offer," he said.
Separately, Reich and Tang announced on April 3 that it had entered into an agreement to acquire five money market funds from HighMark.