Where we are now
So far this month a number of consolidation and takeover deals and talks among asset managers and other investment firms have been reported. Royal London is talking to Co-operative Financial Services’ asset management arm; Williams de Broë is in advanced discussions with BNP Paribas Wealth Management to acquire its investment management business; and Australian group BT Investment Management has acquired JOHCM.
There are also discussions between Threadneedle and LV=, although at the moment it is unclear if that will involve a purchase of funds or merely end in an outsourced arrangement for LV= funds.
While the flurry of activity in July has certainly attracted attention, these deals aren’t anomalous. Over the past 12 months there have been several big deals, such as Hendersons and Gartmore at the end of 2010, Man taking over GLG in October while F&C completed its purchase of Thames River in September.
M&A fallout
The problem with M&A in the asset management industry is it generally has significant consequences for the funds of both groups involved. Manager departures, fund closures and mergers are all natural by-products of consolidation in this industry.
And for IFAs and investors, that’s not always a good thing.
It means suffering through a period of uncertainty as consolidation plans develop as fund charges or mandates may be changed and key managers may leave, leading IFAs to prefering to switch fund choices. All of this also includes the added headache and cost of keeping clients abreast of the developments.
On the other hand though, increased capital strength at a time when groups are contending with expensive and resource-draining regulatory changes, can provide funds with much-needed backing and stability.
Mid-size pinch point
It has long been argued that costly initiatives like RDR and other regulatory initiatives can be more easily handled by the larger groups while boutiques are nimble enough to cope. This leaves the mid-sized companies as targets and feeling the squeeze.
The IMA lists the top 101 investment groups by size of UK funds under management (FUM). The figures given to the IMA favour retail but some institutional monies are also included. As of May 2011, with £40bn Invesco Perpetual sits at the top of the IMA’s list, followed by M&G, Fidelity, Schroders and L&G.
Some of those in discussion, and others who have already been involved in takeover talks, are in the middle of that 101 – JOHCM ranks 53 on the IMA’s list; CIS is 40 out of the 101; while Royal London is higher up at 22.
What is particularly eye-catching in the IMA’s figures is that there are more than 40 groups with less than £1bn in UK FUM. While many are standalone boutiques, others are the asset management arms of life companies or banks.
More to come?
L&G Growth Trust manager Robert Churchlow is a big advocate of the growing M&A theme with around 50% of his fund’s holdings potential beneficiaries from a pick-up in this area. He hasn’t specifically highlighted financial services’ firms beyond the London Stock Exchange, however he does note potential targets tend to be quality companies with unique assets or those operating in a consolidating industry.
It would appear UK asset managers are fast falling into the latter catagorisation.
Catherina du Toit, a global financial analyst at Sanlam, says across financial services the main driver of M&A continues to be attractive target valuations. Certainly Churchlow concurs, noting UK equities look particularly attractive right now.
It’s hard to even predict who might be the next targeted group or what firms might pop up as being in ‘exclusive talks.’ What is certain is the improbability these July events will be the last.
