The pace of money manager merger and acquisition activity could remain strong in 2018 but faces potential market volatility and geopolitical and inflation risks, according to a Sandler O'Neill & Partners report issued Wednesday.
Continued strength in the equity markets this year could encourage selling, said Sandler O'Neill's 2017 Asset Manager Transaction Review and 2018 Forecast. The 2018 forecast comes on the heels of a 2017 that saw 208 transactions involving $2.893 trillion in total assets under management. Transactions in 2017 were up 40% over 2016, while total AUM involved was up 11.3%.
Among the expectations for 2018:
- Market volatility could spur smaller firms to sell in order to remain viable, as reduced equity returns will no longer offset continued outflows.
- Firms with popular specialist capabilities that are "less likely to be cannibalized by passive strategies" will be attractive acquisition targets.
- Traditional money managers threatened by investors' shift to passive investments will look for buyers with distribution capabilities.
- Alternative asset management deal flow will remain strong, particularly real asset strategies such as real estate and infrastructure.
- Private wealth management deal activity will remain strong. In 2017, 77 transactions involved private wealth management, up 57% from 2016.
- U.S. tax legislation will add about 10% to pricing.
In 2017, according to the report, the largest deal by AUM was Standard Life's merger with Aberdeen Asset Management — $342 billion in AUM at Standard Life and $372 billion at Aberdeen.
