While 2009 saw record assets under management (AUM) transacted despite a decline in the total number of deals, the first six months of 2010 have seen more muted transaction activity. According to a press release, at $437 billion in the first six months, total AUM transacted was in line with 2001, when just under $900 billion of AUM was transacted over a 12-month period, and well below the $2 trillion-plus levels in 2006-2009.
Also, with 51 transactions during 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 each year. By comparison, worldwide M&A activity across all industry sectors increased by 4% in the first half of 2010 relative to the first half of 2009, and 9% in terms of deal value.
“Turning Tides,” a review of global asset management M&A during the first half of 2010 published by Jefferies, notes that, as the asset management industry adapts to post-recession conditions, the transaction environment will seek a ‘new normal’ in the months ahead.
Jefferies expects the following trends to play out during next 12 months:
- Overall deal volumes will increase, as strategically driven transactions replace and exceed the hole in deal activity left by the winding down of divestiture activity. Although divestiture activity is expected to continue as large financial institutions re-assess strategic direction and focus on core businesses, divestitures will represent a smaller portion of deal activity.
- Independent asset managers will gradually return to the transaction landscape. As sellers continue to shift their focus from business preservation brought on by the financial crisis to executing their strategic plans, they will seek partners to help them grow. In addition, as nearly three years have passed since the onset of the financial crisis, the backlog of individual owners needing to address retirement and estate planning has increased. Lastly, as strategically-driven transactions come to the forefront, buyers will be more willing to pay strategic premiums, ultimately enticing sellers to the negotiating table.
- Investors will continue to increase their allocations to global / international portfolios and traditional fixed income, thus making targets with those capabilities the most highly desired among buyers looking to fill out their product suites. Managers specializing in emerging markets investment strategies, particularly those with local presence in their investment markets, will garner particularly strong interest among buyers.
- 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. As economic growth in their home markets have strengthened their resolve and filled their war chests, buyers from Asia and emerging market countries will seek to expand both their product lines beyond their local product expertise and distribution presence beyond their home market.
- As a result of a looming economic recovery and hopeful return to less volatile equity markets, at-scale asset managers will look to the public markets as a means to secure liquidity while maintaining control of their businesses. IPO activity in the coming months, assuming cooperative global equity markets, will exceed historical levels, as more firms look to the public markets in the face of a narrowed universe of asset management buyers.
A copy of “Turning Tides” can be requested at http://www.jefferies.com/FIG/insight.