NEW YORK — The value of deals in the money management industry nearly tripled in 2006 from the previous year, marking one of the most significant periods of mergers and acquisitions in the industry's history.
The number of deals ticked upward to 134 in 2006 from 117 the year before, while the overall value of these deals spiked to an astounding $44.5 billion for 2006 — the highest one-year cumulative deal value ever in the money management industry, according to data from investment bank Cambridge International Partners Inc., New York. The total in 2005 was $16.9 billion.
The year was highlighted by two of the largest deals to ever take place in money management — BlackRock Inc.'s February acquisition of Merrill Lynch Investment Managers, followed by Bank of New York Co. Inc.'s acquisition of Mellon Financial Corp. in December.
The Bank of New York and Mellon deal, which was primarily executed to marry the two companies' securities servicing businesses, also created a money management organization with more than $1 trillion in assets under management.
With a deal value of $16.5 billion, the Bank of New York-Mellon transaction qualifies as the largest asset management deal in the industry's history, leapfrogging the $9.7 billion BlackRock-Merrill deal, which topped the record books for 10 months of 2006.
Combined, the two deals were worth $26.2 billion, accounting for roughly 60% of the total deal value in the money management industry. "You saw a number of large players on a quest for scale in 2006," said Joe Hershberger, managing director of investment bank Putnam Lovell NBF Securities Inc., New York. "The U.S. is a mature market, and for U.S.-based firms looking to participate in a global market, bigger is better."
Paul Holt, president of Cambridge International Partners, said 2006 was the most "remarkable" year in M&A since 2000, when there was a total of 116 deals worth $31.7 billion, the previous one-year high.
Aside from the two largest deals, Mr. Holt noted that several of the major deals in 2006 were motivated by divestitures in which financial services companies elected to part with their money management arms. Charles Schwab Corp.'s sale of U.S. Trust Co. was the largest divestiture of the year, with Bank of America Corp. acquiring the $94 billion asset management business for roughly $3.3 billion.
Nationwide Financial Services Inc. also sold off its Gartmore Investment Management business to private equity firm Hellman & Friedman LLC and Gartmore's management team for $892 million in May, in what checked in as the largest ever management-led buyout deal in the industry's history.
Mr. Holt said he expects divestitures to play a key role in merger and acquisition activity next year as well, particularly among regional banks, much like the deals in which Washington Mutual Inc. (WM Advisors) and Comerica Inc. (Munder Capital Management) shed their money management operations last year to, respectively, Principal Financial Group and a team made up of Munder Management and private equity firm Crestview Partners LLC.