Merger and acquisition (M&A) activity is expected to reshape the global asset-management business over the next several years, according to a new white paper from consulting firm, Casey Quirk, a division of Deloitte Consulting LLP, published on Wednesday.
Specifically, the global asset-management industry is set for "the largest competitive realignment" in its history due to intensifying M&A activity, the white paper suggests. It forecasts stronger deal activity this year and expects that to continue through 2020.
The Casey Quirk report notes that 44 M&A deals took place in the global asset-management industry in the first quarter of 2017 and that M&A activity is on pace to exceed that of the past couple of years (there were 133 deals in 2016 and 145 in 2015).
In the year ahead, Casey Quirk expects that private equity firms will likely shift to sellers of asset managers from buyers, "taking advantage of a growing number of strategic buyers with open checkbooks," the paper states.
In addition, the white paper predicts that financial sponsors will continue to seek growth opportunities, such as wealth-management consolidators and financial technology firms that are focusing on the asset- and wealth-management sectors.
"Less likely will be the financial engineering transactions that defined most of the last decade — deals designed primarily to create founder liquidity or take advantage of an arbitrage in public-private multiples," the white paper notes.
There are several factors driving the high-tempo of M&A action, including client demographics and the underlying shift to passive investment strategies from active ones, which are creating pressure on industry fees and conferring greater value to "firms with valuable distribution platforms and those investing in technology," the report suggests.
As such, Casey Quirk expects to see deals that seek "transformative scale" in order to generate revenue and cost synergies; transactions that add innovative capabilities; and deals that enable asset managers to diversify into distribution, wealth management, or the advice business, the report states.
"Amid this challenged marketplace, the gap is widening between leading and lagging asset- and wealth-management firms," says Ben Phillips, a principal and investment management lead strategist with Casey Quirk, in a statement. "Unlike deals of the past, consolidation pressures, with a focus on scale, will likely drive the next round of M&A activity to position firms for growth sectors."
"Economic pressure, distributor consolidation, the need for new capabilities and a shifting value chain are the catalysts that are fuelling M&A activity," adds Masaki Noda, managing director with Deloitte's risk and financial advisory division, in a statement. "Asset managers are feeling pressure from many corners and are looking for ways to secure a competitive advantage. Strategic deals may be the answer."
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