Many market participants remain keen to move into higher margin alternative investment sectors or to build scale in their existing area of focus.

Outlook

Amid continued volatile markets and economic uncertainty, the asset management sector continues to see strong merger and acquisition activity.

Many market participants remain keen to move into higher margin alternative investment sectors or to build scale in their existing area of focus. Private equity investors also remain interested in the asset management sector, attracted by potential "bargains" as well as by the regularity of cash flows.

At the same time, larger financial institutions such as banks, whose balance sheets and regulatory capital surpluses have been repeatedly dented by credit and fair value losses, look to divest themselves of non-core operations.

Deal Activity

  • Henderson Global Investors beat a wide range of competing bidders to acquire New Star Asset Management plc, the distressed retail asset manager, aiming to increase their assets under management from £50bn to £60bn to become the fifth largest UK retail manager.
  • Aberdeen Asset Management acquired a significant portion of Credit Suisse Asset Management increasing its assets under management to some £150bn and becoming the largest listed UK fund manager in the process, with the intention to realise synergies and expand business globally.
  • GLG Partners, one of the largest hedge managers in Europe, acquired the UK asset management business of Société Générale to diversify its long only products to its existing client base.
  • F&C Asset Management plc acquired REIT Asset Management Limited, a European real estate manager with assets under management of £4bn, to create a combined real estate manager with £8bn of assets under management.
  • Aberdeen Asset Management plc acquire Goodman Property Investors for £109m, and by adding its assets under management of over £7bn, is seeking to create one of the largest UK property managers and providing critical mass in the UK market in a particular asset class.
  • Acquisition of IMS Group, a multi-manager with £5.1bn of assets under management, by BNP Paribas Investment Partners, with the new business operating relatively autonomously under BNP's multi-manager platform, FundQuest.
  • Man Group plc and Millenium Capital Management have acquired smaller hedge fund managers, whilst banks and funds managed by banks, such as Goldman Sachs, continue to build minority stakes in a range of hedge fund managers.

Deal Issues In The Current Environment

In a time of challenging market conditions, buyers and sellers need deal management and well executed strategy. Typical deal issues include:

  • Quality and nature of assets under management – a careful understanding of the composition and historical development is key to assessing sustainability of fees and strength of margins. Geographic, sectoral, client and asset class concentrations, as well as proportions of retail versus lower margin institutional funds are key factors. Product range and investment performance are critical to future growth particularly in falling markets in various locations and asset classes.
  • Access to distribution – distribution is critical, whether it be retail distribution through IFAs and fund supermarkets or via investment consultants for institutional opportunities. Geographic and jurisdictional barriers continue to erode only gradually and access to distribution into new locations, as well as through innovative new channels, remain drivers of acquisition activity.
  • lncentivisation and reward issues – the past few months have shown exactly how damaging losing key fund managers can be. Understanding existing remuneration arrangements, which are often complex and varied, and the related tax obligations, as well as structuring future incentivisation arrangements are essential not only in retaining or attracting scarce talent, but also in ensuring bonuses are appropriately linked to successful performance.
  • Deal structuring innovative cross-jurisdictional structures are becoming more common, as businesses seek to ensure efficient levels of regulatory capital and minimise tax exposures.
  • Post merger integration (PMI) – traditionally asset management mergers have focused on top line growth and achieving scale. Increasingly, the opportunity to achieve synergies through rationalising infrastructure and location, leveraging technology platforms and outsourcing arrangements, integrating risk management activities and eliminating redundancies in resourcing have been essential in delivering a return on investment in M&A.

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