Investment Management Deals Shrink in 2001

Berkshire’s Investment Management Industry Review 2002 shows 130 M&A transactions in 2001 – just edging out the previous record set the year before at 126. There were even three dozen deals between September 11 and year end.

However, the deals’ value dropped by more than half to $15.6 billion, while assets under management plummeted by 41% to $830 billion.

The reason, according to Berkshire: staying away from $1-billion-plus megadeals, companies during 2001 tended to look for “tack-on acquisitions” to fill a specialized niche in their business – whether that ended up extending a firm’s distribution or adding new expertise.

Berkshire said buyers during 2001 were much more price sensitive because of the declines in their assets caused by a stubborn bear market in the US and similar uncertainties globally. For their part, sellers knew they wouldn’t likely reap premium prices in a down economy so many sat on the sidelines, Berkshire said.

Other Berkshire conclusions:

• the wealth management sector was the scene of much activity during the year as a “solid profit center” against a more volatile mutual fund and institutional investment area,
• banks led the lineup of buyers with 35% of the year’s transactions, followed by insurance companies, securities firms, and institutional managers, and
• investment managers tried to extend their cross-border reach in 2001 with deals in new markets

In considering industry M&A prospects for 2002, Berkshire predicted both buyers and sellers would remain cautious, but that deals – perhaps less expensive ones – would still be closed.

Over the long term, Berkshire said, business will likely pick up dramatically when the economy rebounds because of market forces such as the increasing need for baby boomers to save for retirement.