The asset management industry is expected to see “the largest competitive re-alignment in asset management history”, with strong merger and acquisition (M&A) activity between 2017 and 2020, according to asset management strategy consultancy Casey Quirk, a practice of Deloitte Consulting LLP.
According to its study, “Skill through scale? The role of M&A in a consolidating industry”, which focuses on the investment management merger and acquisition outlook, activity would be driven by the following factors: ageing population which would affect industry asset levels and flows, a broad shift to passive management and by firms which tended to focus on valuable distribution platforms and technology investments.
Casey Quirk’s principal and investments management lead strategist and one of the study’s authors, Ben Phillips, said: “Unlike deals of the past, consolidation pressures, with a focus on scale, will likely drive the next round of M&A activity to position firms for growth.”
According to the firm, the future investment management merger and acquisition deals in 2017 would be described by the four main categories:
- Transformative scale acquisitions driven by revenue and cost synergies;
- Capability-based transactions representing additions of innovative investment and technology products;
- Shifting value chain as asset managers would tend to buy firms helping them extend their capabilities in the area of distribution, wealth management or advice; and
- Pure consolidation deals
The study found that in 2016, there were 133 mergers and acquisitions across the asset management and wealth management industries, which was slightly down from 145 in 2015, but the deals represented a higher average value, up from $240.9 million in 2015 to $534.4 million last year.
Additionally, in investment management about half of the deals were driven by the necessity to add capabilities, such as innovative investment strategies or access to new market segments, while in the wealth management industry, the vast majority of transactions resulted from consolidation as smaller mangers tended to improve their profitability through economies of scale.
Deloitte’s risk and financial advisory managing director and co-author of the paper, Masaki Noda, said: “Economic pressure, distributor consolidation, the need for new capabilities, and a shifting value chain are the catalysts that are fuelling M&A activity”.
