NEW YORK - The number of mergers and acquisitions in the investment management industry might accelerate during periods of economic downturn, said Bruce McEver, president and founder of Berkshire Capital Corp.
Mr. McEver made the comment during the recent Investment Management Mergers & Acquisitions symposium in New York City, sponsored by Frank J. Fabozzi and Information Management Network. "The invisible hand of the marketplace seems to be repositioning people," said Mr. McEver. Berkshire is a New York investment banking firm specializing in mergers and acquisitions in the financial services industry.
Last year, there were 87 M&A transactions in the investment management industry, amounting to more than $7 billion. At the end of September, fewer than 50 deals had been agreed upon, according to Mr. McEver.
The number of deals could increase to about 67 by year's end, amounting to nearly $7 billion as well. So, although the number of deals is down this year, the amount of money spent by year's end could be about the same, according to Berkshire Capital.
The current M&A pace in the investment management industry can be expected to continue over the next five years, investment bankers said.
"Many (acquisitions) are product line fill-ins. We don't know where the trend is going, but consolidation will accelerate if there is a downturn," Mr. McEver said.
Money was not the big driver for Scudder, Stevens & Clark Inc.'s merger with Switzerland-based Zurich Group, said Stephen Beckwith, Scudder's chief operating officer. He is expected to be an executive with the merged firm.
"We did not do a deal for financial reasons. There were strategic criteria," Mr. Beckwith said. Considerations included the desire for global distribution; the capacity to build and strengthen the mutual fund business abroad; the ability to add more assets to existing products that would create significant operating leverage; and the desire to add product capability.
"Asset management had to be a core for any partner. And we didn't want to be their North American arm. We wanted a single international platform, but we wanted to have autonomy so there would be no changes in what our clients had hired us for," Mr. Beckwith said.
Mr. McEver said that along with wanting to expand product line, some firms are motivated by a desire to create super institutions.
Companies like Citicorp and The Travelers Inc. might be late getting back into asset management, but it has become a big priority for them, and their ability to distribute makes them a formidable force, according to Milton Berlinksi, managing director of the financial institutions group of Goldman, Sachs & Co., New York.
"Scale is the big driver of this. The disparity between top players and second-tier asset management firms is growing, The larger players will push out smaller players, and the smaller players will be marginalized over time," Mr. Berlinksi said.
Strategic partnerships can be very advantageous for talented investment professionals who want to remain independent but need a little scale to work certain deals, Mr. Sass said. For example, his firm created an alliance with Chase Bank to handle distressed securities; that entity now has $700 million in assets, he said.