How M&A can help Asset Managers outpace change

July 23, 2018

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by Andrew Claymore Corporate Finance Director

Email +44 (0)7740 923441

by Stephen Jones Partner

Email +44 (0) 7970 775507

How M&A can help Asset Managers outpace change

The asset and wealth management industry is undergoing exponential change. M&A has been an effective strategy in driving this change, with 41% of asset and wealth management (“AWM”) CEO’s actively considering a merger or acquisition.

Against a backdrop of rising costs and pressures on fees and margins, AWM firms are considering ways in which they can build competitive scale, diversify product range and vertically integrate to gain an increased share of the value chain and increase links to the end client through advice or wealth management businesses, as indicated in the diagram below:

AWM subsectors example

As we previously highlighted in ‘Asset Management deal insights 2017: Sustaining relevance’ we continue to see 4 key drivers reshaping the AWM market and driving M&A:Buyers’ market – The balance of power has shifted towards investors who, along with regulators, are driving down fees. This shift is well demonstrated by rising levels of assets under management (AuM) and falling revenues.

This is fuelling M&A activity as firms look to gain economies of scale or acquire additional capabilities to justify fees

  1. Digital technologies – set to disrupt all areas of the AWM industry, technology will reshape competition and business operating models. Rising costs drive firms to consider automation and outsourcing of middle-office and back-office functions, whilst Artificial Intelligence assists investments.

M&A offers the ability to acquire emerging technologies and remain ahead of the curve, allowing more efficient scale to be built

  1. Outcomes matter – there has been a cyclical turn from active management to passive management, boosting choice for investors through outcome-orientated solutions and products. This is driving firms to expand their products and investment solutions.

M&A can provide firms with an opportunity to expand product ranges

  1. Filling the financing gap – in the wake of the financial crisis, banks are pulling back lending in order to maintain capital and liquidity levels, meaning there is a shortage of funds for SME businesses. Alts and multi-alts managers can plug this gap through real asset finance. M&A is being fuelled by larger scale asset managers acquiring niche alternative players and increasing interest from private equity firms in the AWM industry

In summary, M&A can help firms sustain their competitive relevance, meet evolving customer demands and ensure technological capabilities remain up to speed with the market.

Outlook

Looking forward, we expect M&A to continue at pace across the sector with high quality assets generating significant levels of interest. Ongoing domestic consolidation and value chain diversification will continue to fuel M&A, but we expect to see an increased level of cross border M&A, particularly in the asset management space and greater levels of strategic investment in Fintech businesses to expand digital propositions.

 

by Andrew Claymore Corporate Finance Director

Email +44 (0)7740 923441

by Stephen Jones Partner

Email +44 (0) 7970 775507