Overall money manager merger and acquisition action this year will decline from 2007 levels, although activity will still remain vibrant, according to a research paper on M&A trends from investment bank Putnam Lovell, a division of Jefferies & Co.
Much of the merger and acquisition activity this year will involve alternative investment firms, said Ben Phillips, managing director and author of the report. In 2007, 32% of all transactions in the asset management industry involved alternatives asset managers. That portion will increase in 2008, although Mr. Phillips declined to estimate how much it will increase.
He claimed long-only management firms will look to acquire alternatives firms, while alternative investment firms will look to team with traditional managers to dampen revenue volatility.
Traditional and alternative asset managers will both remain in high demand by private equity firms, Mr. Phillips said. Leverage has dried up for private equity firms so they will look to higher dividend-producing companies to make up for the leverage shortfall in their businesses. Private equity is still falling over itself for fund management (deals), he said. They need high cash flow businesses and thats asset management.
The report also predicts that cross-border activity will drive a growing portion of deal activity as U.S. asset managers try to meet their clients growing demand for international securities.