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Money Management

PwC: Money manager M&A deals plunge in second quarter after spike to start year

U.S. asset management and wealth management merger and acquisition deals plummeted in the second quarter after seeing record activity in the first quarter, said a report released Wednesday by PricewaterhouseCoopers.

There were 28 announced deals in the second quarter, down 32% from the 41 announced deals in the first quarter. Deal value, meanwhile, was $2 billion, down 38% from the previous quarter.

PwC attributes the drop-off to several factors, including there being no transactions involving foreign buyers for the first time since the fourth quarter of 2013; uncertainty created by the U.S. Department of Labor's fiduciary rule comment period; and only one announced deal per sector for hedge funds, private equity firms and institutional managers, compared to an average of three per quarter. Minority investments for less than 20% of a company's equity were excluded from PwC's analysis.

While the largest deal during the quarter ended June 30 appears to be Stone Point and KKR & Co.'s acquisition of the multiboutique wealth manager Focus Partners, the deal value was not officially disclosed. Various news articles speculated that the price was between $1.6 billion to $2 billion, according to PwC.

There were two disclosed deals in the second quarter: the $173 million acquisition of Scout Investments by Carillon Tower Advisors and the $67 million acquisition of Wunderlich Investment Co. by B. Riley Financial.

Strategic minority interest deal volume continued to be strong in the alternative asset management industry in the second quarter as there were at least six announced transactions involving hedge funds and private equity managers, including Goldman Sachs' Petershill Fund's investment in Accel-KKR, Dyal Capital Partners' investments in Sound Point Capital Management and Atalaya Capital Management and Warburg Pincus' investment in Princeton Growth Ventures.

The asset and wealth management initial public offering market saw no announced offerings during the quarter. Hamilton Lane priced its $190 million IPO in February 2017.

While the overall asset management industry has been growing, active managers continue to struggle with declining assets under management because of passive investing and fee pressures. While PwC expects some deals will be completed in the second half of the year, buyers and sellers are finding it difficult to agree on deal terms, it said. "We expect to see a continuation of the current choppy deal environment," the report said.

Deal activity involving traditional institutional asset managers fell to one deal during the second quarter from three deals during the first, while there was an increase in deal volume involving mutual funds, with three deals during the second quarter, up from two deals during the first.

Meanwhile, overall deal activity within the alternative asset management subsector plunged compared to the prior quarter. There was only one announced hedge fund deal in the quarter ended June 30 vs. eight in the previous quarter. Private equity deal volume, meanwhile, fell to only one deal during the second quarter, from two deals during the first.

The full report is available on PwC's website.