Large deals increase the value of investment industry mergers and acquisitions

The value of mergers and acquisitions in the investment industry nearly tripled last year, reaching its highest level since the global financial crisis, as intense competitive pressures spurred the latest wave of consolidation activity.

According to Piper Sandler, the Minneapolis-based investment bank that maintains a database of trade and price information dating from the 1990s, the announced M&A deals involving asset and wealth managers. fell from $ 13.6 billion in 2019 to $ 38.9 billion last year.

Nine deals involved prices in excess of $ 1 billion: Morgan Stanley’s acquisition of Eaton Vance for $ 7 billion and Franklin Templeton’s acquisition of $ 4.5 billion of Legg Mason in the top two. most important acquisitions. Piper Sandler also included the sale of a $ 14 billion stake in BlackRock by US bank PNC in its 2020 figures.

The increase in large transactions pushed the value of assets transferred between managers to $ 2.9 billion, more than double the $ 1.3 billion recorded in 2019.

Aaron Dorr, a director at Piper Sandler, said larger asset managers would continue to seek acquisitions in order to “leverage their scale” to increase revenues and reduce costs.

The immense challenges of competing with the bigger players would also encourage smaller managers to “open the door” to mergers and acquisitions, Dorr said.

Transaction activity has started well through 2021, including the recent sale of Wells Fargo Asset Management for $ 2.1 billion to private equity managers Reverence Capital and GTCR.

Finding a partner capable of delivering specialized investment strategies that are less vulnerable to attacks from low-cost trackers and ETFs is a priority for potential buyers.

Agreement activity fell sharply in March, April and May as the coronavirus pandemic accelerated, but then recovered in the second half of the year, ending with a surge in December.

The total number of M&A deals involving asset and wealth managers rose to 256 last year, from a record 270 deals announced in 2019.

In the highly fragmented wealth management industry in the United States, consolidation has taken place at a breakneck pace in recent years as more owners of small investment advisers approach retirement age and looking for a way out.

“The combination of the aging demographics of financial advisers, a large pool of potential sellers and the increased demand for resources from wealth managers of all sizes represent powerful catalysts for mergers and acquisitions,” said Dorr.

A record 153 transactions involving asset managers were announced last year, up from 150 in 2019.

Private equity managers have been tasked with driving M&A activity, buying up larger wealth managers who, in turn, have taken over several smaller competitors.

General Atlantic bought a minority stake in Creative Planning, a Kansas-based $ 50 billion wealth manager. Creative Planning has since acquired eight small managers.

GTCR has acquired a 25% stake in Captrust Financial Advisors, a $ 48 billion wealth manager based in North Carolina. Captrust has since completed five transactions involving other asset managers.

Private equity managers are generally willing to tie higher valuation multiples to larger wealth managers who can then be used as vehicles to capture smaller players.

According to Piper Sandler, the price of transactions involving larger wealth managers was an enterprise value to underlying earnings multiple of more than 12. The equivalent multiple for smaller wealth managers who are more likely to be acquired is on average between eight and nine times the underlying profit.

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