Acquisitions in which an asset manager buys a unit from a financial services company are likely to be a continuing theme in the industry, according to research released Monday.
The report's authors believe that the twin drivers of asset managers looking to grow and raise profits, and their relative health compared with other financial companies, spells more consolidation in the industry.
"If you look at the history, asset managers have often been big buyers of other asset managers," said Aaron Dorr, a managing director at Jefferies Putnam Lovell, which produced the report. "Those rare other financial institutions that have the balance sheet to write checks today are focusing more on their core businesses away from asset management."
Banks, broker-dealer companies and insurers are typically involved in bidding for asset managers, as are private-equity firms. But the market downturn has hurt those sectors far more than asset management.
Asset managers also typically have healthier balance sheets than most other financial companies, which puts them in a better position to buy.
Dorr said the trend means that there will be faster consolidation. The report predicts an increase in merger and acquisition activity regardless of the market's direction — deals will be done as buyers try to expand profit margins and affected sellers seek more stable owners.
The report noted that 52% of asset management deals in the first half of the year were divestitures, the biggest share for this category in five years. In 2004, many financial companies shed their asset management arms in the wake of mutual fund scandals and tightened regulatory oversight.
