Conditions ‘ripe’ for fund manager M&A activity: WAM

Wilson Asset Managment mergers and acquisitions merger GQG Partners M&A

9 April 2024
| By Jasmine Siljic |
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The current macroenvironment is proving to be ‘encouraging’ for global mergers in the funds management space, says Wilson Asset Management (WAM).

According to the firm, present market conditions are favourable for asset managers eyeing further M&A activity this year.

The investment team at WAM Global is focused on finding high-quality companies with long-term compound earnings growth trading at discounted valuations, the company said.

“The macroeconomic environment appears to be encouraging for global M&A. Interest rates have stabilised, leading to renewed optimism from corporate and financial buyers with money to spend,” remarked Catriona Burns, lead portfolio manager at WAM Global.

While the firm isn’t reliant on mergers as a part of its investment philosophy when deciding which companies to invest in, Burns believes many of WAM’s firms are potential targets for dealmakers.

She continued: “With market returns largely driven by a small subset of stocks in recent years, WAM sees many quality companies around the globe trading at attractive valuations, which have been left behind.

“With market returns beginning to broaden out, and confidence returning to dealmakers, WAM Global expects significant value to be unlocked [through takeovers].”

Merger activity is expected to accelerate as corporate buyers look to spend billions of dollars in uninvested capital, the lead portfolio manager said, due to a likely decline in interest rates in 2024.

“Whether it’s the pressure to maintain growth amid a slowing macroeconomic backdrop or the pressing strategic need to adapt and transform business models in a rapidly changing business landscape, M&A activity will be central to strategic choices,” Burns elaborated.

Most recently, WAM Leaders entered into a scheme implementation agreement to acquire 100 per cent of QV Equities (QVE). If the transaction proceeds, net assets are expected to increase by $238.8 million on a pre-tax NTA basis to create a strategy with a market cap of almost $2 billion and 30,000 shareholders.

In contrast, GQG chief executive Tim Carver recently said M&A activity is not a primary objective for the firm.

“We did pursue an acquisition of Pacific Current Group, ultimately this didn’t come to fruition, and we did that from a very strategic standpoint as we would like to expand into the alternatives space,” he commented.

Last year, GQG made an acquisition bid for Pacific Current Group, but the deal ceased a few months later after failing to achieve the support of the firm’s largest shareholder.

Carver added: “I’m fairly sceptical of M&A activity in this industry as it is very, very hard to pull off. We are always open-minded on finding ways to grow the business to bring our clients’ innovative investment strategies, but we don’t have an objective to grow through acquisitions.

“We are more likely to lift out a team or take a minority stake in a team where we can leverage our infrastructure than to do M&A, but we also want to make sure we are not missing opportunities.”

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