2007 may shatter newly minted records for global asset management M&A

Date: Wednesday, January 10, 2007
Author: Putnam Lovell NBF Securities Inc

M&A activity in the global investment management industry in 2006 surpassed previous records for number of transactions, disclosed deal value, and the amount of assets, and a repeat performance is in store in 2007 if capital markets worldwide don’t lose ground, according to investment bank Putnam Lovell NBF Securities Inc.

Led by the two largest asset management acquisitions in investment management history, the number of deals rose to 189 for the 12 months through December 2006, exceeding the previous peak of 159 set in 2004. The amount of assets acquired totaled $2.646 trillion over that period, almost double the previous record of $1.377 trillion established in 2000. The disclosed deal value of asset management transactions was $43.8 billion, compared with $30.9 billion in 2000, the previous high point for M&A activity in the global asset management business.

By contrast, in 2005, the total number of deals was 143; the amount of assets acquired reached $1.154 trillion; and the disclosed deal value total totaled $17.2 billion, according to Putnam Lovell NBF, which specializes in the global financial services industry. 

‘’The strategic catalysts reshaping asset management for the next quarter-century will exert even greater strength during 2007, as fund managers grapple with more onerous product development demands and find themselves buffeted by rapidly changing industry dynamics,’’ said Ben Phillips, managing director and Head of Strategic Analysis at New York-based Putnam Lovell NBF. ‘’Demands for absolute return solutions will continue to fuel record interest in alternative investment managers of all stripes, and cross-border transactions will grab more headlines in the months ahead.’’

The persistent gap in valuation between quoted companies and private-market asset management transactions has spurred keen interest in public listings, creating an IPO pipeline likely to rival the record 10 money management company flotations worldwide in 2006.

‘’Nevertheless, private-market transactions continue to represent more than 95% of the M&A activity in the global asset management industry,’’ Phillips said. ‘’Most fund managers remain allergic to the regulatory burdens and other demands associated with a public listing.’’

Key drivers to strong M&A activity in 2007 also include the enthusiasm of private equity firms for this fee-based investment business, the continuing imperative for financial services companies to focus on core operations and shed undersized and underperforming asset management divisions, consolidation in the US retail fund business, and keen interest to capture market share in the wealth management sector.

Among the asset management M&A highlights to date in 2006 are:

  • The largest investment management deal ever by acquired assets and disclosed deal value - Bank of New York’s agreement in December to acquire Mellon Financial for $17.6 billion, adding approximately $947 billion in assets under management. That announced transaction eclipsed the previous biggest asset management transaction, BlackRock’s $9.6 billion purchase last year of Merrill Lynch’s fund management operations in exchange for a 49.8% stake in the publicly traded company.
  • The biggest management buyout in asset management history by asset size - the acquisition of Gartmore Investment Management’s European business by Gartmore management and private equity firm Hellman & Friedman. Acquired assets: $44.9 billion.
  • Most transactions involving alternative asset managers - 55. The previous record was 30 deals, established in 2005. Transactions involving hedge fund managers and fund of hedge funds (FoHFs) continue to comprise the majority of deals in the alternative investments segment, 40.
  • Most fund manager IPOs - 10 through December, raising an estimated $2 billion in proceeds. The previous record was four, set in 2005, and raised an estimated $790 million. 
  • Largest amount of acquired assets by financial sponsors, such as private equity firms - $197 billion. The previous record was $118 billion, established in 2004.

Putnam Lovell NBF Securities Inc. (“Putnam Lovell NBF”) is an investment banking firm focused on the financial services industry. It offers merger and acquisition advice, merchant banking, equity capital markets, equity derivatives, fixed income trading, and general corporate finance advisory services.