News
March 02, 2003
Berkshire Capital Corporation's Annual M&A Survey Highlights Current Trends
New York, March 3, 2003 - Berkshire Capital Corporation is pleased to release the Investment Management Industry Review, its 2002 survey of transactions in the investment management industry. Overall, the number of transactions in the industry remained consistent with 2001: 129 deals in 2002 versus 130 in 2001. While the number of transactions remained robust, the value of transactions fell by 40% to $9.4 billion from 2001's $15.6 billion, which was less than half the $36.4 billion registered in 2000.
Berkshire Capital's Investment Management Industry Review analyzes current themes in the asset management industry: the dearth of billion-dollar deals, the continued attraction of wealth management firms and hedge funds, and the puzzling lack of consolidation in the mutual fund industry.
In 2002, firms made smaller, strategic acquisitions that added investment expertise, distribution or geographic coverage, said R. Bruce Cameron, President of Berkshire Capital. This strategic tack-on approach was visible particularly in the flurry of deals involving hedge funds. Acquirers sought to strengthen their existing alternative investment offerings or gain a foothold in a growing area, the Review noted.
Looking ahead, H. Bruce McEver, Berkshire Capital's Chairman, highlights several factors that may drive mergers and acquisitions in the asset management industry, including:
- Increasing pressure for large players to consolidate, divest, or partner
- Overcapacity in Europe, making the search for buyers intense and alliances more appealing
- A similar overcapacity in mutual funds that may lead to an industry shake-out
- Increased pressures on fees in institutional money management, causing some firms to examine their strategies and reduce costs
- A reversal in the proliferation of hedge funds, with many shutting down and others developing long-only products
- Competition will increase in the wealth management sector, leading to sales and consolidation
Wealth Management
The wealth management sector continued to be one of the busiest areas in the investment management industry, with a record 50 transactions in 2002. Unlike other sectors where the number of transactions remained constant and the deal value declined, the deal value for the wealth management sector remained on par with 2001 at $2 billion.
The steady deal numbers in 2001 and 2002 underline the ongoing attractiveness of a business that can generate high margins, provide loyal customers and tap into the enormous pool of assets, the Review said. The Review further noted that the combined wealth of individuals with assets of least $1 million is $26.2 trillion worldwide, four times the amount invested in U.S. mutual funds.
Institutional
Activity in the institutional asset management sector picked up, with 56 total transactions in 2002 (an increase from 44 in 2001 and 50 in 2000). Overall, however, deal value dropped 50% in 2002 to $3.5 billion from $7.3 billion in 2001, and was well below the record $17 billion posted in 2000.
Bank of Ireland's purchase of Iridian Asset Management (61% for about $171 million with an option to buy the rest of the company, which had $11 billion in assets under management) was one of the hallmark deals of the year.
Cross-Border
There was more cross-border activity in 2002 than in 2001 - 48 transactions versus 35 - but as in other sectors, deals were smaller and billion-dollar transactions were missing altogether. There were 21 cross-border deals involving a U.S. company as a buyer or seller.
European firms stayed closer to home, but, as with Bank of Ireland, some did cross the Atlantic looking for partners. Generally, European transactions were small, reflecting in part the battering taken by Europe's nascent equity-ownership culture.
The largest transaction by value for the year was London-based Man Group’s $833 million acquisition of RMF Investment Group of Switzerland. The deal created perhaps the world’s largest hedge fund manager and was further evidence of companies moving across borders to enhance their businesses.
Mutual Fund
The Review noted a lack of activity in the mutual fund arena. The poor investment performance of many publicly-traded asset managers was reflected in the number and value of transactions in the mutual fund sector. Mutual fund activity should pick up again as major players seek to address performance and financial issues through spin-offs, divestitures, and consolidation.
Typical of the cautious, strategic approach was John Hancock's purchase of two small mutual funds - the U.S. Global Leader Growth Fund and the Penza Focused Value Fund. Hancock plans to use its distribution network to grow sales of the two funds.
Real Estate and Alternative Investments
The real estate sector remained reasonably active with 3 transactions in 2002, down from 8 in 2001. The hedge fund sector was particularly active, with 14 transactions in 2002 versus 8 in 2001. The transaction value in 2002 exceeded the value of the cumulative total for the previous four years because of the Man/RMF transaction.
About Berkshire Capital Corporation:
Berkshire Capital Corporation was founded in 1983 to advise clients on mergers, acquisitions, divestitures, joint ventures and other alliances in the financial services industry. As the first investment bank to target the asset management and securities industries exclusively, the firm has acquired deep senior-level industry contacts and gained a perspective on the financial services industry during a period of tremendous growth and consolidation. A recognized leader in the field, Berkshire Capital has advised buyers or sellers on more than 160 completed transactions. The firm has also completed more than 120 independent valuation and strategic advisory assignments.
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