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Asset management M&A “to be driven by divestitures and distressed sales”

Sizable asset management transactions, which were largely absent in 2008, are likely to reappear in 2009, according to Jefferies Putnam Lovell, the investment banking group of Jefferies

Sizable asset management transactions, which were largely absent in 2008, are likely to reappear in 2009, according to Jefferies Putnam Lovell, the investment banking group of Jefferies & Company.

This will be driven by distressed selling of investment divisions by commercial banks and insurers, consolidation among alternative firms, and opportunistic buying by financial players that are emerging with fewer wounds from a historic and ongoing global credit crisis, the firm says.

When ranked by number of deals, 2008 was the second most-active year on record in the global asset management industry, recording 217 deals compared with 242 in 2007.

With USD1.99trn in assets under management transacted, 2008 also ranked second overall, tied with the 2007 total of USD1.99trn, and below the peak of USD2.65trn set in 2006, according to Jefferies Putnam Lovell.

However, based on disclosed deal value, M&A activity in 2008 fell dramatically from the previous year’s total of USD52.1bn. With USD16.1bn in disclosed deal value, 2008 was only the fifth-highest year on record.

Only three deals announced in 2008 exceeded USD1bn in purchase price, compared with 15 USD1bn-plus transactions in 2007.

‘The most active buyers over the past decade, namely commercial and investment banks and insurance companies, are now becoming sellers of, or seeking strategic partnerships for, their asset management businesses,’ says Aaron Dorr, New York-based managing director at Jefferies Putnam Lovell. ‘We expect pure-play asset managers and private equity firms to be the biggest beneficiaries of this massive reshaping of the industry.’

Selling by distressed and motivated financial institutions dominated the second-half of 2008, with approximately two-thirds of all M&A activity based on disclosed deal value in the July to December period attributed to divestiture activity, a record total.

Significant examples include the all-stock sale of Lehman Brothers’ Neuberger Berman division to management, Aberdeen Asset Management’s purchase of parts of Credit Suisse’s fund management business for Aberdeen shares, the sale of a minority interest in CI Financial Income Fund by Sun Life Financial to Scotiabank, and the Allianz takeover of Commerzbank’s Cominvest subsidiary.

Acquisitions by private equity firms slumped in 2008, according to Jefferies Putnam Lovell, following a record 2007 with market turbulence trumping appetite. 

Financial buyers accounted for only ten per cent of disclosed deal value and 12 per cent of assets acquired in 2008, against 34 per cent and 30 per cent respectively in the prior year. Alternative managers accounted for a record 33 per cent of the total number of deals in 2008, yet the pace slowed dramatically in the fourth quarter amid massive redemptions and performance woes. 

Buyers acquired only USD13.8bn of alternative assets in the fourth quarter, 91 per cent below the USD151.4bn total in the year-earlier period.

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