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PwC: Money manager M&A deals down in 2016 but at ‘healthy level’

U.S. asset management and wealth management merger and acquisition deals were down in 2016 compared to 2015, but still maintained “a healthy level” compared to prior years, said a report released Tuesday by PricewaterhouseCoopers.

The PwC report found 126 deals in 2016, compared to 144 in 2015. In 2014, PwC reported 86 deals and in 2013, 84.

U.S. disclosed deal volume amounted to $10.1 billion in 2016, the report found, relatively flat from the previous year's $9.75 billion.

PwC said in the report that deal activity fell into two categories in 2016. One category, defensive, involved mainly small- and midsized money managers. Those managers “looked at M&A markets to achieve economies of scale, to defend their business against continued fee pressures and margin compression associated with regulatory changes,” according to the report.

The other category was activity aimed at expansion, which the report characterized as “product, distribution and geographic footprint expansion.”

“These deals were smaller in size as acquirers were wary of execution risk,” the report said. “Such deals included ETFs, smart beta, fintech acquisitions.”

Samiye Yildirim, PwC's U.S. asset management M&A leader, said in an interview that hedge funds were one segment that had low activity with 13 deals in 2016, the lowest number in 10 years. PwC reported 18 deals in 2015.

She said the decline is primarily because hedge funds continued to have performance issues during 2016.

“If you're a seller you want to sell when you're at the top of the market, not coming out of a poor performance period,” she said. “There was interest (from buyers) but there wasn't enough sellers in the hedge fund space.”

The report said the second biggest deal of 2016, the $2.6 billion merger of Janus Capital Group and Henderson Group, “sets the stage for many midsized traditional asset managers to start looking for consolidation opportunities.” (The largest deal was the $3.4 billion acquisition of American Capital by Ares Capital.)

Still, the report notes there is “uncertainly” surrounding 2017 activity as Donald Trump's administration takes office with questions about how their “economic, tax and regulatory agenda,” will unfold.

“It is difficult to guess whether healthy levels of M&A will continue or the dealmakers may choose to wait out 2017 to minimize execution risk,” she said.