Crisis overhang feeds into asset management M&A deals

A global report on the prospects for mergers and acquisitions in the financial sector indicates a higher number of deals in asset management, although smaller in size, than last year, with the overall value up by a significant 22%.

The report from New York-based Freeman & Co, which offers independent advice on M&A, capital raising, underwriting and competitor benchmarking to financial institutions, noted Europe has hosted many of 2011’s largest transactions to date, including AlpInvest /Carlyle ($43.3bn AUM), Gartmore / Henderson ($25.8bn AUM) and Emerging Markets Management / Ashmore ($10.4bn AUM)

The number of transactions globally increased to 58 in H1 2011 versus 54 in H1 2010, a 7% increase. The median transaction size was $1.6bn in assets under management compared to an overall average of $6.7bn, while total transaction volume increased to $390bn from $319bn the previous year.

In Europe, wealth management transactions have been prevalent, with 15 deals in the first half of 2011, versus 16 in the entire year of 2010.

Eric Weber, managing director and COO of Freeman & Co. LLC says: “Big asset management deals are down, but mid-sized deals are growing; broker/dealer deals are down as the sector stabilized, but insurance deals are up as they recapitalize and consolidate. We expect these sector differences to be the key to future M&A and that rotation among them will continue as financial services stabilizes in the new economic and regulatory environment we face.”

Broker-dealer activity declined to 152 transactions in H1 2011 for a total deal value of $7bn, off 2010’s pace with full-year totals of 343 transactions and $53.2bn in deal value. Regulatory uncertainty and profitability pressures impeded growth-oriented transactions, as Dodd-Frank compliance measures have not yet produced significant deal activity and decreased equity and fixed-income volumes have delayed growth plans, the report noted. However, the large dealers have generally recovered since the financial crisis and re-entered balance sheet-intensive products.

“The reinvigorated balance sheets of the large dealers have forced renewed competition, and thus you will see consolidation among many smaller players in the broker-dealer landscape” says James Hatchley, managing director & COO of Freeman & Co. Europe.

Insurance transactions increased to 166 in H1 2011 from 113 in H1 2010, a 47% increase, as large institutions still smarting from the financial crisis continued shoring up their balance sheets and divesting non-core lines. In H1 2011, Bank of America, Met Life, Genworth and Dexia all divested capital-intensive assets and or business units. Total deal value of $10.3bn was down considerably from $19bn in H1 2010 due to one large transaction then – Met Life’s purchase of ALICO from AIG for over $15bn.

Private equity firms were successful in monetizing their FIG investments in the first half of the year: the number of exit transactions was 23 in H1 2011 compared to only 15 in H1 2010, a 53% increase. Notably, Cerberus Capital Management sold Chrysler Financial Services Americas (now known as TD Auto Finance) to TD Bank for $6.3bn in April 2011. Overall, the number of private equity transactions involving financial institutions was 66 in H1 2011 compared to 70 in H1 2010, a 6% decrease.

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