Mergers and acquisitions  

Conditions ‘ripe’ for M&A wave to continue

Conditions ‘ripe’ for M&A wave to continue

Mergers and acquisitions in asset management are set to continue, according to a research note by Credit Suisse Securities Research analysts, which outlined several reasons for the trend.

The team of analysts said “conditions are ripe” for a continued high level of M&A activity globally into 2022 for seven reasons.

One was firms' investment capabilities, as it said asset managers needed to upgrade their existing capabilities to grow in areas such as private markets, exchange-traded funds, solutions, ESG, active fixed income and direct indexing. 

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“They could pursue team lift-outs which are cheaper or acquire a business with earnings via bolt-ons or acquire businesses that come with other products,” the analyst note said.  

Many asset managers would also benefit from a larger distribution effort, including with more scale in the US and European retail channel where size is a clear advantage, it said.

Other reasons included visible bank and insurance buyers as several are public about their desires to acquire asset managers. 

“Morgan Stanley was the most active but JPMorgan and State Street are now the most vocal,” the note said. 

“There are other large banks and insurance companies, which could be active but are less vocal on their M&A objectives (ex: Generali).”

Turning to these in the US, the research analysts said there has been an increase in activism in the US asset management industry which could encourage more consolidation – most recently Trian acquired stakes in both Invesco and Janus Henderson with M&A as one of their priorities.

It suggested the desire for firms to grow earnings through M&A and take advantages of attractive valuation multiples was also a factor for many transactions.

Additionally, taxes may rise in the US next year which could encourage a “pull-forward of transactions into 2021” - “especially among the RIA consolidator and multi-manager models where individuals would be impacted by higher long-term capital gains taxes”.

Globally, the note said, "several large banks were public about their desires to sell their asset managers - Wells Fargo just sold its asset management arm to two private equity firms and Banco do Brasil has been vocal about its interest in selling their asset management subsidiary."

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