M&A pause seen as buying window

NEW YORK — Worldwide and domestic merger and acquisitions activity in the asset management industry is off from last year's level — a slowdown that is creating significant buying opportunities for tactical financial institutions.

In its midyear 2004 update, Berkshire Capital Securities, New York, said there were 50 asset management transactions worth approximately $2.6 billion in the first six months of 2004, down from 73 transactions totaling some $4.5 billion in the year-earlier period. The decline underscores a growing emphasis toward smaller and more strategic deals at a time when the mutual fund trading scandal spurred some to forgo larger transactions.

"When you're going through a time where markets slow down, people tend to back up to look to see what happened," said Berkshire President Bruce Cameron in an interview.

Still, some buyers are sniffing out niche companies domestically and overseas that meet their key criteria: proven track records and focused investing expertise.

"There's less competition out there looking," he said.

Affiliated Managers Group Inc., Prides Crossing, Mass., an asset management holding company with a keen interest in midsized firms, has seen its deal pipeline flow steadily. In mid-September, it hatched plans to buy New York-based TimesSquare Capital Management's growth equity business. TimesSquare, the investment management arm of CIGNA Corp., oversees $5 billion in small-cap and midcap stocks for about 90 institutions, including pension funds. The announcement followed AMG's announced plan in July to acquire $3 billion in assets under management from Fremont Investment Advisors, San Francisco.

The holding company's buying activity goes beyond U.S. borders as well. Earlier in the summer, AMG completed its 60% equity interest in Genesis Holdings International Ltd., which has a presence in England, Guernsey, Kenya, Chile and Brazil.

Though the report said companies such as Legg Mason Inc., the Principal Financial Group and MassMutual Financial Group were doing deals in Asia, AMG is virtually alone in its quest for firms in Europe. "Transatlantic activity was virtually nonexistent in the first half, with the notable exception of Affiliated Managers Group's purchase," the report said.

Overall, M&A activity in the first half of the year — by number of deals — rose 12% domestically and 7% worldwide, according to Thomson Financial figures cited in the report.

Berkshire's Mr. Cameron said he expects the momentum to extend into 2005. "We'll see more activity next year," he said. "There are some sectors that are quite active."