Significant challenges in the money management industry could lead to increased merger and acquisition activity, states a third quarter M&A report released Thursday by PricewaterhouseCoopers.
“Accelerating outflows from active asset managers is going to create an environment where many managers will look for acquisitions and mergers to maintain profitability and survive,” said Samiye Yildirim, U.S asset management M&A leader, in the report.
The report said several hedge funds have underperformed the broader markets, “which could also result in increased consolidation in this subsector.”
But the report also noted that overall deal activity in the alternative asset management sector “waned” compared to the prior quarter. During the third quarter, there were three announced deals involving hedge fund and collateralized loan obligation targets, compared to five in the second quarter. The number of deals involving private equity and business development company targets were three in the third quarter, compared to five in the second quarter, the report said.
Total deal activity of 36 transactions in the third quarter was 20% higher than the second quarter, but the transaction volume of $600 million was down 89% from the second quarter, the report said.
It said the transaction volume was down because there were no deals of $1 billion or more in the third quarter. The report said the prior quarter's activity included Ares Capital Corp.'s $3.2 billion acquisition of American Capital Ltd. The value of the Henderson-Janus deal was not included in third-quarter results because it happened in October.
Other key findings cited in the report in the third quarter were:
- Deal activity in the mutual fund subsector remained strong with nine announced deals compared to five in the second quarter. “This activity is supporting our view that the sector will go through significant consolidation,” the report said.
- Buyer interest in exchange-traded funds and smart beta businesses continued to remain strong, the report said, citing Amplify ETFs Sept. 7 purchase of YieldShares and the Oct. 17 completion of a deal in which American Beacon Advisors acquired Crest Investment Partners.
- Minority-interest deals continue to be attractive, the report said, noting Dyal Capital Partners' minority investments in private equity firm Silver Lake in July and in private equity firm H.I.G. Capital in August, as well as the August announcement that AIMS Petershill Programs (a unit of Goldman Sachs) had purchased a minority stake in private equity firm Littlejohn & Co. on Oct. 3.
The report also mentioned the announced merger of money manager Henderson Group with Janus Capital Group in October and Nationwide's acquisition of annuities specialist Jefferson National in September.
Other major deals it cites in the third quarter include F.A.B. Partners' $333 million acquisition of CIFC, a fixed-income manager, in August, and Mitsubishi UFJ Trust & Banking Corp.'s $190 million acquisition of Rydex Fund Services from Guggenheim Partners in July. Rydex Fund Services provides fund administration services.