Bright days are ahead for money manager mergers and acquisitions, with small and midsize boutique acquisitions expected to dominate the landscape through the end of 2013, say consultants and investment bankers.
“A lot of sellers are looking for ways to grow their own business to take advantage of the rise in equity markets in the first half,” said Gilbert Dychiao, director at Freeman & Co., New York. “A lot of small and midsize independent firms are looking to grow, and one way is by partnering with larger firms that need their product.”
In a Freeman report issued on July 1 that stated there were 75 money manager M&A deals in the first half of 2013, the company forecast a similar amount of deals in the second six months, bringing the total for the year to 150. That would be a 9.5% increase from the 137 transactions last year. The deals in the first half of 2013 represented $1.2 trillion of assets under management, an increase of 156% from a year earlier. For all of 2012, transactions involved $1.4 trillion in AUM, according to the report.
A report by Sandler O'Neill & Partners LP found a similar trend, with 73% manager M&A deals in the first half of 2013, up 10% from the first six months of 2012, with a total disclosed deal value of $8.4 billion and about $1.31 trillion in AUM involved.
“Deal activity in asset management is definitely picking up, both in the number of deals and the range of (asset) sizes in the deals.” said Sam Yildirim, partner and U.S. asset management deals leader at PricewaterhouseCoopers LLC, New York. “Market dynamics have improved. Assets under management and EBITDA (earnings before interest, taxes, depreciation, and amortization) are what drives deals and both have improved. It's tougher to sell when the firm is distressed.”
“I'm bullish, too,” added Elizabeth Bloomer Nesvold, managing partner, Silver Lane Advisors, New York. She said the number of deals is down from what she saw in the first half of last year, but Silver Lane has recorded about 77 deals so far this year, “which is healthy.” M&A deals “should continue at a robust pace for the rest of the year. The volume of activity is not going to be as lofty as it was last year, but the industry is on a trajectory that'll make (financial investment group) bankers very happy,” she said.