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Money management M&A deals dip in quarter

Thirty M&A deals targeting money management firms with at least $500 million in assets under management were announced globally in the second quarter of 2012, down from 36 in the second quarter of 2011, according to a report Thursday by investment bank Sandler O'Neill & Partners.

The report cited a pickup in global economic uncertainties and a pullback in equity markets as factors impeding negotiations during the second quarter.

While the number of deals declined year over year, sizable IPOs by Carlyle Group, with AUM of $147 billion, and Oaktree Capital Group, with $75 billion, left combined AUM for the latest quarter's M&A deals up 109%, at $324 billion, from the year before.

With the second-quarter tally, first-half M&A deals stood at 66, maintaining a steady pace following 63 deals and 69 deals, respectively, for the second and first halves of 2011.

The report noted that buyers remain cautious, with the transformational deals of previous years giving way to more tactical deals.

In a telephone interview, Aaron H. Dorr, managing director and head of asset management investment banking with Sandler O'Neill, noted that efforts by big financial companies to divest large money management businesses continued to face headwinds during the latest quarter. Such difficulties could prompt sellers to become more open about carving off pieces of their asset management operations, rather than insisting on a package sale, said Mr. Dorr. He predicted that one or two sizable deals are likely over the coming year.

One area where divestitures continued in the second quarter was in the mutual fund sector, with seven transactions, as financial institutions with subscale businesses opted to abandon their retail fund efforts, according to the report.

Sandler O'Neill's report noted that transactions involving alternative managers remained a significant chunk of overall M&A activity, at nearly 40% of the second-quarter total. Mr. Dorr noted that four of five transactions in the hedge fund-of-funds sector were consolidation deals, reflecting in part growing moves by larger institutional investors to invest directly in hedge funds.

The report noted that potential changes to tax rates could push independent sellers to complete transactions by the end of 2012.