Given the pain most of the financial sector feels right now thanks to the markets, fundsters may not be surprised to hear that an M&A firm for the asset management business expects deals, particularly distressed ones, to rise in 2009. In a report issued Monday, New York City-based Jefferies Putnam Lovell anticipates "distressed selling of investment divisions by commercial banks and insurers." But the real question is, who might buy?
"We expect pure-play asset managers and private equity firms to be the biggest beneficiaries of this massive reshaping of the industry," stated Jefferies managing director Aaron Dorr.
Yet Jefferies notes that "acquisitions by private equity firms slumped in 2008 ... with market turbulence trumping appetite," and adds that only 10 percent of deal value (12 percent of deal AUM) went to financial buyers. So the possible identity of buyers going into 2009 seems to remain fuzzy.
According to Jefferies, 217 asset managers changed hands worldwide in 2008, representing $1.99 trillion in AUM and $16.1 billion in "disclosed deal value" (i.e. total deal prices), down from 242 deals in 2007 with $1.99 trillion in AUM and $52.1 billion in value.
Company Press Release
NEW YORK, January 12, 2009 – Sizable asset management transactions, largely absent in 2008, are likely to reappear in 2009, 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, according to Jefferies Putnam Lovell, the investment banking group of Jefferies & Company, Inc. focused on the asset management and financial technology industries.
When ranked by number of deals, 2008 was the second most-active year on record in the global asset
management industry, 217 compared with 242 in 2007. With $1.99 trillion in assets under management
transacted, 2008 also ranked second overall, tied with the 2007 total of $1.99 trillion, and below the peak of $2.65 trillion 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 $52.1 billion. With $16.1 billion in disclosed deal value, 2008 was only the fifth-highest year on record. Only three deals announced in 2008 exceeded $1 billion in purchase price, compared with fifteen $1 billion-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," said 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."
“European banks are at last facing up to their success as distributors and their failure as manufacturers of investment management services," said Kevin Pakenham, London-based Managing Director of Jefferies Putnam Lovell. "This year, we will see the further emergence of a strong independent sector in Europe, following the well-established US model."
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, following a record 2007, with market turbulence trumping appetite. Financial buyers accounted for only 10% of disclosed deal value and 12% of assets acquired in 2008, against 34% and 30%, respectively, in the prior year. Alternative managers accounted for a record 33% 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 $13.8 billion of alternative assets in the fourth quarter, 91% below the $151.4 billion total in the year-earlier period.
Jefferies Putnam Lovell will publish in February an in-depth review of 2008 activity and a look at what’s in store in 2009 for M&A in the global asset management sector.
About Jefferies Putnam Lovell
Jefferies Putnam Lovell, the division of Jefferies & Company, Inc. focused on the financial institutions industry, offers a wide range of corporate advisory services, including mergers and acquisitions advice and capital raising. Jefferies Putnam Lovell’s global client base is comprised of diversified financial services firms, institutional and mutual fund managers, alternative investment managers, banks, broker-dealers, insurers, and financial technology firms. Putnam Lovell was founded in 1987 and today operates from offices in New York, San Francisco, and London. Since July 2007, Putnam Lovell has been a division of Jefferies & Company, Inc., the principal operating subsidiary of Jefferies Group, Inc. (NYSE: JEF). For more information please visit www.jefferies.com/jpl
Jefferies, a global investment bank and institutional securities firm, has served growing and mid-sized companies and their investors for 45 years. Headquartered in New York, with more than 25 offices around the world, Jefferies provides clients with capital markets and financial advisory services, institutional brokerage, securities research and asset management. The firm is a leading provider of trade execution in equity, high yield, convertible and international securities for institutional investors and high net worth individuals. Jefferies & Company, Inc. is the principal operating subsidiary of Jefferies Group,
Inc. (NYSE: JEF; www.jefferies.com)