Report Predicts More Bid Activity among Asset Managers

Merger and acquisition (M&A) activity among asset managers is set to increase, as an improving economy and higher valuations offer stronger growth, says Moody’s Investors Service.

In its report, entitled
‘Confidence Among Asset Managers Will Drive Greater Industry Consolidation’
, the credit ratings agency (CRA) notes that recent M&A transactions include last month’s announcement by Man Group of its intention to purchase Numeric Holdings, TIAA-CREF’s US$6.25bn acquisition of Nuveen announced in April, and Standard Life Investment’s purchase of Ignis Asset Management announced in March, among others.

“Asset managers are motivated to buy now given an improving macroeconomic picture combined with financial positions that are back at or stronger than pre-crisis levels,” said Robert Callagy, a Moody’s senior vice president (SVP). “In addition, sellers are also likely to act now since business fundamentals have improved in the past several years and valuations are also higher.”

Asset managers make acquisitions to increase assets under management, scale up and diversify, enhance investment capabilities, and fill gaps in current business models, says Moody’s.

It expects M&A activity in the asset management industry will likely pick up in the next 12-24 months. Factors fueling the activity include improving economic conditions, low capital markets volatility, stronger earnings and cash positions and favorable financing markets.

That is because the asset management industry greatly benefits from scale. Small groups of firms are increasingly capturing outsized share of new client flows in each of the industry’s key market segments.

In addition, Moody’s notes that there are two types of sellers; small players who are repositioning, and larger players such as banks or insurers which are divesting to rationalise costs or avoid regulatory requirements. The CRA expects that larger players will continue to sell their asset management businesses, given the increased implementation of new global financial regulations.

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