Barclays PLC's sale of its asset management unit to BlackRock Inc. epitomized the 2009 money management M&A market: struggling banks and insurers selling asset management units to raise cash to shore up balance sheets.
The sales — at discount prices — reflected a continuation of the financial crisis that had slowed mergers and acquisition activity in 2008, consultants, analysts and investment managers said. Money managers earned less as the value of their assets under management declined, their businesses were worth less and some deals that might have happened were put on hold in the hope that better days were down the road.
Whether 2010 is going to be better will depend in part on whether the forced sales by banks and insurers stop, said John Temple, a managing director with New York-based investment bank Cambridge International Partners. “Until that ends, the market is going to have difficulty returning to normalcy," he said.
By that measure, the new year might not be getting off to a good start: News reports in early January cited sources as saying that SunTrust Banks Inc. had put its RidgeWorth Investments business on the block because of financial losses at the parent bank.
Still, there are many in the M&A money management arena who believe 2010 will be a better year.
Donald Putnam, the San Francisco based managing partner at Grail Partners LLC, sees better days ahead because of pent-up demand.
“After three years of war-of-attrition among strategic buyers and a financing drought for financial buyers, we see a breakout year for transactions in 2010," Mr. Putnam said.
David Heaton, managing director and head of Global Asset Management Investment Banking at Deutsche Bank AG in New York, said he expects 2010 to be a year of deals for high-quality boutique money management firms in what he describes as marriages “of asset gatherers and asset managers."
In 2009, there were 174 investment industry mergers and acquisitions, according to data from Cambridge, compared with the 193 in 2008. Big deals — $1 billion or more — more than doubled to seven from three, according to Cambridge. In contrast there were 202 deals in 2007, 13 of which exceeded $1 billion each.
By total deal value, it might appear at first glance that 2009 — at $35.2 billion —was a much better year than 2008, with $20.1 billion.
But Mr. Temple noted that nine of the 14 largest divestitures were by banks and insurance companies in financial trouble. They included Bank of America Corp. selling Columbia Management Group; Citigroup Inc. divesting Nikko Asset Management; and Barclays' sale of Barclays Global Investors to Black Rock.
“These sales undermined buyer confidence and pushed down prices, particularly for larger transactions," Mr. Temple said.
The BlackRock-BGI deal accounted for nearly 40% of the total 2009 deal value, Cambridge data show.
The sale was forced by Barclays' need to raise capital to satisfy British banking regulators. Mr. Temple said the sale price — $13.5 billion — was a third less than the parent would have been able to obtain if it had been able to wait until market conditions had improved.
Likewise, Mr. Temple said, Bank of America sold Columbia Management Group to Ameriprise Financial Inc., also for about one-third less the price it might have received under better market conditions.
Mr. Temple said the BlackRock-BGI deal made sense from a strategic standpoint — the second-largest worldwide asset manager taking over the third biggest player. The new combination formed an industry leader with more than $3 trillion in assets under management.