Asset Manager M&A Values Surge

M&A deals are likely to be focused in hedge funds and ETFs in 2015, PricewaterhouseCoopers has said.

Merger and acquisition (M&A) activity among asset managers will continue to increase in 2015, recovering from the lowest levels during and after the financial crisis, according to PricewaterhouseCoopers (PwC).

Thanks to several mega-deals last year with values exceeding $1 billion, the total value of asset management M&A deals reached the highest since 2009, the report said. Total disclosed deal values in 2014 were $12.7 billion, nearly six times the $2.6 billion in 2013.

However, PwC found the number of deals remained relatively flat—86 in 2014 compared to 84 in 2013—indicating a slow but steady return to the height before the financial crisis.

The report also said stabilizing valuations and an increasingly fragmented asset management market, among various factors, would contribute to an uptick in future M&A deals.

“We are cautiously bullish about the M&A outlook for 2015,” Sam Yildirim, PwC’s US asset management deals leader, wrote. “While surpassing the deal values from 2014 would be difficult, we are hopeful that we will continue to see a healthy recovery.”

M&A transactions would continue to be strong among hedge funds and mutual funds, according to PwC, with deal volumes already up by roughly 40% to 50% in 2014 from the previous year.

The narrowing valuation gap between buyers and sellers has played a big role in improvements in the two subsectors, the report said. Specifically, the report found growing investor optimism for hedge funds with strong track records and demonstrations of alpha continued to attract new investments. 

A skyrocketing interest in exchange-traded fund (ETF) managers and firms seeking to gain access to the ETF market also fueled M&A activity, PwC said. Even small ETF firms are increasingly becoming acquisition targets for larger asset managers, as seen by notable transactions in 2014 including New York Life’s purchase of Index IQ and Janus Capital’s acquisition of VelocityShares.

PwC also said there was also an uptick in IPOs last year among managers of all sizes by acquiring niche products and players to “expand their operating platform and grow their investor base.”

This month’s issue of CIO Europe will investigate how M&A is shaping the asset management industry and the future of the behemoth and boutique models. Register today to receive your copy.


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By Sage Um