Larger financial institutions shedding their asset management business accounted for the bulk of mergers-and-acquisitions activities in the third quarter, a trend that will continue in the months ahead, according to a report today from the financial-institutions group of Jefferies & Co. Inc.
More than two-thirds of global asset management M&A activity (68%) resulted from divestitures, a record level in a three-month period, according to Jefferies.
Divestitures represented just 38% of the total deal volume in the third quarter of 2008.
Prominent examples of divestitures during this last quarter include Bank of America Corp.'s announced sale of the long-term-asset-management business of its Columbia Management Group LLC subsidiary to Ameriprise Financial Inc., The Bank of New York Mellon Corp.'s announced acquisition of Insight Investment Management Ltd. from Lloyds Banking Group PLC and the purchase by Sumitomo Trust and Banking Co. Ltd. of Citigroup Inc.'s 64% interest in Nikko Asset Management Co. Ltd.
Year-to-date through September, divestitures accounted for 57% of asset management transactions, a record for a nine-month period, compared with 32% in the comparable period last year, according to Jefferies.
“As larger financial institutions refocus on strategic strengths, we expect they will continue to separate asset management distribution from manufacturing, keeping the former and seeking solutions for the latter businesses,” Aaron Dorr, a managing director with Jefferies' financial-institutions group, said in a statement.
At least one mutual fund watcher, however, questioned that prediction.
Large financial institutions aren't shedding asset managers just to refocus on their strengths, said Geoff Bobroff, a mutual fund consultant in East Greenwich, R.I.
They are also selling off their asset management businesses to eliminate the potential conflict of being both a producer and distributor of mutual fund products, he said.
Apart from a deal rumored to be imminent — whereby Morgan Stanley would sell Van Kampen Funds Inc. to Invesco Ltd. — there aren't many larger players left that have that potential conflict, Mr. Bobroff said.
“I think several of the banks may continue to divest themselves of their asset management units, but they are not really significant players,” he said.
That could mean M&A activity will look a lot different than it has recently.
Deal volume in the third quarter totaled 38, compared with 66 announced transactions in the third quarter of 2008, according to Jefferies.
But while there were fewer deals done in this year's third quarter, because some of those deals were so big, managed assets transacted rose to $749 billion, from $728 billion in the year-earlier period.
Disclosed deal value climbed to $4.5 billion, from $4.2 billion, and the median deal value was $140 million — almost twice the median of $73 million in the third quarter of 2008.
For the first nine months of 2009, deal volume totaled 113, compared with 174 in the comparable 2008 period, according to Jefferies.
Approximately $3 trillion in managed assets was transacted over the first nine months of this year, compared with $1.3 trillion in the first nine months of 2008.
Disclosed deal value through September totaled $18.4 billion, led by the announced sale of Barclays Global Investors to
BlackRock Inc. for $13.5 billion. In the first nine months of 2008, disclosed deal value totaled $11.9 billion.
