There were 69 deals (including those pending) involving European asset managers and assets during Q3, with UK firms the most active both at home and abroad, according to data from Refinitiv.
Of these, 22 are mergers and/or acquisitions of UK firms by UK firms; and five deals where British companies targeted businesses in Europe.
In contrast, only four UK-based firms were the targets of overseas M&A ambitions.
Cornelia Andersson, global head of M&A and capital raising at Refinitiv, explained to Expert Investor that consolidation has been a key trend and well-established strategy in the US and the UK, but not as much in Europe.
Consolidation allows the industry to deal with cost saving and regulatory pressure, while also reinvigorating it, according to Andersson.
“There are significant benefits in terms of cost savings, shared resources and a larger footprint in consolidation, all of which are needed to boost UK asset managers’ competitive position,” she said.
Squeezed middle
The three biggest UK M&A deals in Q3, according to Refinitiv, were:
- Liontrust Asset Management agreed to acquire the entire share capital of the UK investment business of Architas, ultimately owned by Axa SA, for a total of $92.9m (€79m).
- K3 Capital Group acquired the entire share capital of Quantuma Advisory for a total of $54.5m.
- Curtis Banks Group agreed to acquire Dunstan Thomas Group for a total of $35m.
Larger firms benefit most from the consolidation trend, while mid and smaller-sized firms are often targeted.
“Small to mid-sized firms are also more challenged in the current environment, and we’re seeing pressure on the ‘squeezed middle’ – mid size firms without the reach of the larger peers and without the lower cost base and flexibility of the small and boutique firms,” Andersson explained.
“Over the past few years, a noticeable trend has also been acquisitions of niche providers with a focus on specialist offerings in terms of locations or regions, industries, asset classes or client segments. It’s a short cut to achieving diversification, acquiring specialist talent and expanding scale.”
Consolidation trend
While UK M&A activity has been strong of late, there is no guarantee that it will be smooth sailing going forward.
Andersson added: “There is, of course, a big unknown on the horizon, which is how the asset management industry will be impacted by Brexit, as a no deal Brexit is looking likely, uncertainty is increasing.”
She said that, in general, “outflows are high and fees are shrinking, which combine to make consolidation inevitable”.
According to Morningstar data, UK equities and equity income funds have been hit with outflows (see chart below).
US deals
From an international perspective, US firms acquired six asset managers in the European region in Q3, more than any other international buyer.
“For those firms that are well capitalised and have deep pockets, the current market environment represents an opportunity to grow through acquisitions, and this certainly applies to US acquirors in Europe,” Andersson noted.
