Business & Economy

Asset managers fuel appetite for M&As

11 July, 2014

 * Sellers include smaller boutique managers and bank/insurance companies *

Moody's expects increased merger and acquisition (M&A) activity among asset managers, as an improving economy and higher valuations offer stronger growth, Moody's Investors Service said in its new report "Confidence Among Asset Managers Will Drive Greater Industry Consolidation."
"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. "In addition, sellers are also likely to act now since business fundamentals have improved in the past several years and valuations are also higher."
Moody's notes that recent M&A transactions include Man Group's recent announcement of its intention to purchase Numeric Holdings LLC, TIAA-CREF's $6.25 bln acquisition of Nuveen announced in April, and Standard Life Investment Ltd's purchase of Ignis Asset Management announced in March, among others.
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.
M&A activity in the asset management industry will likely pick up in the next 12-24 months, said Moody's. Factors fuelling the activity include improving economic conditions, low capital markets volatility, stronger earnings and cash positions and favourable financing markets, the rating agency said.
That's because the asset management industry greatly benefits from scale, Moody’s said. Small groups of firms are increasingly capturing outsized share of new client flows in each of the industry's key market segments.
In addition, the rating agency noted that there are two types of sellers; small players that are repositioning, and larger players such as banks or insurers that are divesting to rationalise costs or avoid regulatory requirements. Moody's expects that larger players will continue to sell their asset management businesses, given the increased implementation of new global financial regulations.