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

Announced M&A deals involving asset and wealth managers rose from $13.6bn in 2019 to $38.9bn last year, according to Piper Sandler, the Minneapolis-based investment bank that maintains a database with deals and pricing information dating back to the 1990s.

Nine deals involved price tags of more than $1bn: Morgan Stanley’s acquisition of Eaton Vance for $7bn and Franklin Templeton’s $4.5bn acquisition of Legg Mason ranked as the two largest acquisitions. Piper Sandler also included the sale of a $14bn stake in BlackRock by the US bank PNC in its 2020 numbers.

The increase in large deals boosted the value of assets moving between managers to $2.9tn, more than double the $1.3tn registered in 2019.

Aaron Dorr, a principal at Piper Sandler, said the largest asset managers would continue to hunt for acquisitions in order to “leverage their scale” to boost revenues and cost savings.

The immense challenges involved in competing against the biggest players would also encourage smaller managers to “open the door” to M&A, said Dorr.

Deal activity has made a solid start to 2021, including the recent sale of Wells Fargo Asset Management for $2.1bn to private equity managers Reverence Capital and GTCR.

Finding a partner that can deliver specialised investment strategies that are less vulnerable to attack from low-cost tracker funds and ETFs is a priority for potential acquirers.

Deal activity dropped sharply in March, April and May as the coronavirus pandemic gathered pace but then recovered in the second half, ending with a surge in December.

The overall number of M&A deals involving asset and wealth managers dipped to 256 last year from the record 270 transactions announced in 2019.

In the highly fragmented US wealth management industry, consolidation has been running at a frenzied pace in recent years as more owners of small investment advisers approach retirement age and look for an exit.

“The combination of the ageing demographics of financial advisers, a significant pool of potential sellers and increased demands on the resources of wealth managers of all sizes represent powerful catalysts for M&A,” said Dorr.

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

Private equity managers have been responsible for driving up M&A activity, buying larger wealth managers which in turn snap up multiple smaller competitors.

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

GTCR acquired a 25 per cent stake in Captrust Financial Advisors, a $48bn North Carolina-based wealth manager. Captrust has since done five deals involving other wealth managers.

Private equity managers are generally willing to attach higher valuation multiples to larger wealth managers that can then be used as vehicles to snap up smaller players.

Deals involving larger wealth managers were priced at an enterprise value to underlying earnings multiple of more than 12 times, according to Piper Sandler. The equivalent multiple for smaller wealth managers that are more likely to be acquired averaged between eight and nine times underlying earnings. 



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