The pace of mergers and acquisitions in the asset management industry is expected to pick up for the rest of this year both nationally and globally after tumbling in the first quarter.
Deals involving managers of alternative strategies and independent firms in particular are increasing, according to a report released this month by Jefferies & Co.'s Financial Institutions Group. More than half of global asset management deals in the first quarter involved acquisitions of alternative managers, versus one-quarter in the first three months of 2009, the report said.
First-quarter transactions involving managers of alternative strategies included Affiliated Managers Group's deal for Pantheon Ventures, Religare Enterprises' deal for Northgate Capital, Aberdeen Asset Management's deal for RBS Asset Management's Investment Strategies fund of funds division and Shumway Capital Partners' sale of a minority stake to Goldman Sachs' Petershill Fund.
"The slack tide of the first quarter's M&A activity will begin to flow again as improved markets bring both buyers and sellers back to the negotiating table," Aaron Dorr, a managing director within Jefferies' Financial Institutions Group, said in a statement. "Alternative asset management businesses continue to be among the most sought-after targets based on their expected future growth."
Twenty-five global asset management M&A deals were announced in the first quarter, versus 38 a year earlier.
Divestitures made up 44% of M&A activity in the first quarter, down from 50% in the first quarter of 2009 and 56% for 2009 as a whole, according to Jefferies.
But PricewaterhouseCoopers, in its recently released PricewaterhouseCoopers' 2010 Financial Services M&A Outlook, "On the Road Again — Transactions in an Opportunistic Market," said it believes the trend of divestitures of asset management businesses by banks and insurance companies will continue into 2010. The firm also expects an increase in consolidation among independent and small and midsize asset managers in both traditional and alternative asset management sectors of the market as valuations start to improve.
Pricewaterhouse said it expects M&A activity in the U.S. financial services industry to increase in 2010 because of improved fundamentals in the sector and clarity around regulatory reform.
M&A for the remainder of 2010 will get a boost from the assistance of the Federal Deposit Insurance Corp. in making deals in the banking sector, continued consolidation among small and midsize asset management firms and an increase in deals in the property and casualty insurance segment.
PricewaterhouseCoopers said it, too, expects dealmaking activity to rise over the remainder of 2010. "We believe the current market presents a significant number of potential opportunities in the banking, asset management and insurance sectors for investors that have the liquidity and capital strength to be acquisitive and the infrastructure and capabilities to realize potential synergies," Gary Tillett, financial services leader, transaction services, at PricewaterhouseCoopers, said in a press release.
In the U.S. insurance sector, the PricewaterhouseCoopers report predicts, activity will remain "muted overall, given the unknown impact of proposed regulatory reform, fewer distressed sellers in the marketplace, and an industry disposition toward rebuilding balance sheets over M&A."
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