Next Wave Of M&A: Investment Management Consolidation On The Rise

In 2020 there has been a flurry of merger and acquisition deals, particularly when it comes to investment management firms acquiring smaller firms.

What's behind the sudden rise in M&A activity?

M&A Deals In 2020 

Morgan Stanley MS announced Feb. 20 it is buying E*Trade Financial Corp. ETFC in a $13-billion deal with the aim to reshape the investment bank.

Franklin Resources, Inc. BEN announced Feb. 18 that it entered into a definitive agreement to acquire Legg Mason, Inc. LM for $4.5 billion.

In the U.K., Jupiter said Feb. 17 it will pay 370 million pounds ($485.3 million) for Merian Global Investors in a deal that would create the second-largest retail asset management group in the U.K.

Deloitte: Post-Merger Integration Is Key 

Investment managers will continue to rely on M&A to diversify their product offerings and geographic presence, Doug Dannemiller, the investment management research leader at Deloitte Services LP, said in an outlook report. 

“Over the last five years, achieving scale and adding new capabilities were the key objectives for most investment manager M&A,” Dannemiller said. 

M&A transactions between investment managers touched a high in 2018, he said. 

"Deal activity continues to remain strong from a bolt-on capabilities perspective, while merger-of-equals transactions are slower to transpire. Even when M&A are the right strategic choice for both firms, desired results are often not achieved due to suboptimal post merger integration."

Geographic Diversification With M&A 

From a geographic diversification perspective, most European firms have been seeking to expand into Asia, while many U.S.-based investment managers have focused on increasing their presence in both Europe and Asia, according to Deloitte. 

“Firms in North America and Europe account for 80% of M&A activity within the investment management industry and are driving continued high levels of activity. This trend highlights the importance of inorganic growth in these mature markets to boost scale and broaden product lines into new asset classes,” Dannemiller said. 

The researcher highlighted Brookfield Asset Management’s recent acquisition of a majority stake in Oaktree Capital Management to create an alternative giant as an example. 

The combined business is expected to have $475 billion in assets under management, offering a diversified suite of private investments including debt, equity, infrastructure and real estate funds.

Will these firms win through diversification?

Thoughtful planning for M&A integration that begins in the transaction phase will emerge as a leading practice in 2020, according to Deloitte.