The Great Asset Management
Consolidation of 2016
STRATEGY + TACTICS
2015 was the biggest year for asset manager mergers and acquisitions in
a decade—and in 2016, M&A activity has
hardly slowed down.
In March, four MassMutual boutiques
and their combined $260 billion in assets
merged to become Barings. In May, Ares
Capital acquired American Capital for
upwards of $3 billion, growing its asset
base to $13 billion. And in October, Janus
Capital Group and UK-based Henderson
Group joined $300 billion in assets under
management to create Janus Henderson
The sheer number of deals is down
this year: As of October, 110 mergers
and acquisitions had taken place in
the US asset and wealth management
sector, compared to 144 over the 2015
calendar year, according to data from
PricewaterhouseCoopers (PwC). But the
amount of money involved per transaction has “leaped ahead,” says PwC Partner
Total deal value in 2015 amounted to
$9.7 billion, including three mega deals
worth a combined $6.2 billion. Meanwhile,
the first 10 months of 2016 alone has already
seen $9.1 billion in M&A transactions,
including two mega deals—the American
Capital acquisition and Janus-Henderson
merger—totaling $5.8 billion.
It would seem that consolidation has
become—pun intended—quite a big deal.
But what’s prompting M&A activity this
year, and how does it compare with the
motivations of the past? The main driver,
experts agree, is an industry shift toward
‘A Shift vs. a Cliff’
Prior to the financial crisis, asset managers’
valuations were very healthy, Yildirim says.
The result was robust M&A activity in 2006
and even in early 2007. But then the financial
crisis hit, spooking buyers and evaporating
interest in mega deals. According to PwC, in
the past decade there have been no more than
three mega deals per year with the exception
of 2007, which saw seven of them as the financial crisis brought forced sales.
“A decade ago, we saw a lot of stress
sales… [but] after the crisis subsided, we
saw things from a product perspective rather
than a stress perspective,” says Jay Langan,
partner with Deloitte Advisory and leader of
Deloitte’s financial services M&A group.
These days, consolidation is “more of a
shift versus a cliff,” he adds.
Although the financial crisis is long
over, other changes in the asset management
industry are impacting the overall market
structure. Each sub-sector of US asset and
wealth management is facing different challenges that may lead to deal activity, but the
mutual fund space, in particular, is consolidating out of necessity, Yildirim says.
M&A activity among mutual fund
providers surged in the third quarter,
according to PwC, with nine deals
announced in this sub-sector out of 36 total
asset management consolidations. Comparatively, the second quarter saw five mutual
fund M&As and 30 transactions total.
Among the main drivers for M&A
activity in the space—as well as in the broader
asset management industry—has been the
shift among investors to low-fee passive funds.
“Increasing competition and pressure
to reduce costs, particularly for actively
managed funds that are struggling to keep
pace with the returns and low fees of index
funds and ETFs [exchange-traded funds],
has led to some consolidation in the asset
management industry,” says Bill Haynes,
president and CEO of BackBay Communi-
cations, a financial services marketing and
branding firm. “Many industry insiders
think that there’s much more on the horizon.”
In addition to the rise of passive
management, there’s an issue of regulation.
The Department of Labor’s new fiduciary
rule could be a boon for M&A activity in
the mutual fund space, Yildirim says—but
until the degree of the impact on the asset
management industry is made clear, there
won’t be too many cash deals and mega deals,
at least in the short term. Add in election-
related market volatility, and the prospects
for further mega deals this year are unlikely.
However, the expertise, time, and money it
will take for managers to comply with the
new regulation, as well as the ability to get
shelf space from wealth managers, will make
it more difficult for smaller, independent
managers to go it alone.
“[Regulatory] changes may favor the
firms that are better equipped with technology and better equipped with resources,”
In alternative asset management, on the
other hand, M&A will be motivated more by
a desire for new products, talent, and geography. For these managers, consolidation is
not going to be high on the list, Yildirim says.
“We don’t expect alternatives managers
to see consolidation in the industry as a
necessity to survive,” she says. “They aren’t