Rabobank's prolonged attempt to sell Robeco Group indicates more trouble ahead for European asset management divestitures, wrapping up a year that so far has been more defined by failures than successes.
Unless an agreement to sell an asset management business at a fair price is announced soon, other potential vendors will be reluctant to put their businesses on the auction block, bankers said.
Even in transactions unrelated to banking divestitures, market uncertainty is helping to alter the asset management M&A process itself. “Everything is slower and more protracted, reflecting more caution by both buyers and sellers,” said Baber Din, director of the investment management mergers and acquisitions team at Deloitte LLP, London.
Increasingly, a portion of the payment may be deferred, typically dependent on performance or future growth of the business. In addition, a minority stake is left with management in perpetuity to better align interests, sources said. Previously, acquirers were likely to purchase management's stake over time.
Kevin Pakenham, co-founder of Pakenham Partners Ltd., London, a boutique M&A advisory firm, added: “We're seeing more interest in partial sales and partial acquisitions.”
One such deal was Sumitomo Trust & Banking Co. Ltd.'s 40% acquisition of London-based equity and credit investment management boutique NewSmith Capital Partners earlier this year. Mr. Pakenham's firm advised NewSmith, whose employees own the remaining 60%. Such transactions are increasingly viewed as “safer for both parties,” Mr. Pakenham said. “One may bring distribution (capabilities), and the other specialist investment skills.”
Another example was Societe Generale SA's announced sale of TCW Group, Los Angeles, to TCW management and The Carlyle Group LP, Washington. The transaction ultimately doubled the proportion of the equity owned by management to 40%. However, in a subsequent legal challenge to the planned acquisition, EIG Global Energy Partners LLC, Washington, won a temporary injunction that could block the transaction. Earlier this month, U.S. District Court Judge Christina Snyder in Los Angeles issued the order pending further evidence submission.
In the first three quarters of 2012, 38 transactions valued at $3.4 billion, with total assets under management of $336 billion, were announced in which targets are based in Europe, Middle East and Africa, according to data from Cambridge International Partners, a boutique investment bank based in New York. That's down from 44 deals valued at $4.9 billion with aggregate $349 billion during the same period last year. Cambridge International data excludes transactions of less than a 10% ownership stake or those involving managers with less than $200 million in AUM.
“There has been significantly reduced activity in Europe so far this year,” said John H. Temple, managing director of Cambridge International. This year is shaping up as “certainly the worst year” in the past several years for European asset management M&A.
Globally, there were 94 transactions in the first nine months of the year, including only 13 deals involving money managers with more than $10 billion in AUM, according to data from advisory firm Freeman & Co. LLC, New York. In comparison, there were 112 transactions with 27 deals involving managers with the same asset range last year. Freeman & Co. reports transactions involving targets with AUM above $500 million.
“It's a challenging time to be making a big bet on asset management,” according to a banker who advises on asset management M&A.
Among the most notable deals that didn't happen in 2012 were the attempted sale by Deutsche Bank AG, Frankfurt, of its asset management business and the decision by UniCredit SpA, Milan, Italy, to abandon pursuit of a buyer for Pioneer Investments.
Asset management M&A in 2013 isn't solely going to be about banking divestments, Deloitte's Mr. Din said. “Among large asset managers, the ones we speak to are absolutely looking at M&A as part of their tool kit for growth. However, they are more focused and strategic about it. The opportunities generally fall into three buckets: expansion of their product range; expansion of their geographic footprint; and building scale.”
Acquirers are willing to pay a premium for “fill-in transactions,” in which buyers look for specific products to strengthen their own offerings, Mr. Pakenham said. Managers of “commodities products” such as exchange-traded funds also will continue to attract demand, as will specialist boutiques, he added.