News
February 02, 2004
NEW YORK—February 03, 2004 – Berkshire Capital Corporation is pleased to announce the publication of the Investment Management Industry Review, our overview of the trends and transactions in the asset management industry. Overall, the number of transactions in the industry remained steady in 2003, at 135 versus 143 deals in 2002. Transaction deal value ($9.3 billion) declined 11% and transfer of assets under management fell to the lowest level ($375 billion) in a decade, supporting the trend of smaller more strategic transactions.
Wealth Management: Torrid Pace
Wealth management was the hottest sector in the asset management industry in 2003. Total deal value for wealth management transactions made a significant jump from $2 billion in 2002 to $6.3 billion in 2003. The largest deal within this sector was also the largest deal to take place last year: Lehman Brothers’ acquisition of Neuberger Berman. The number of transactions exceeded the prior year’s record high: 51 deals in 2003 versus 50 deals in 2002.
U.S. deals continue to be driven by the desire of buyers to expand into new territory, in a business that is still very local and very personal. An example of this strategy is Mellon Financial, which made its fourth “geographic deal” in the last three years with its acquisition of Arden Group in April 2003.
Institutional: Selectivity was the Watchword
The institutional sector experienced far less activity in 2003 than it did in 2002, in terms of the number of transactions. The number of deals was halved in 2002 compared to 2003, while deal value remained the same as in 2002, at a relatively low $1.4 billion.
The once-prominent theme of strategic acquisitions at any price is long past, as future growth expectations are being set more conservatively. In 2003, buyers were selective in seeking companies with specific capabilities. Wells Fargo employed this strategy in its acquisition of Benson Associates, an investment manager that added small-cap expertise to WFC’s institutional investment group.
Mutual Funds: Turmoil and Consolidation Lead to Increased Activity
The mutual fund industry began to show signs of recovery after three difficult years, but M&A activity remained relatively subdued. The number of transactions increased to 28 in 2003 from 22 in 2002 but transaction value dropped sharply to $666 million from $3.4 billion. This apparent anomaly reflects the preference of buyers for acquiring one, or a selected few, funds rather than larger fund complexes.
The increase in deals parallels the consistent net inflows that began in April into equity mutual funds. While the trading scandals that became public in September are damaging many prominent firms and gave the industry a series of black eyes that are unlikely to clear up in 2004, the public remained strong buyers of
some equity funds. The current turmoil will undoubtedly lead to increased mutual fund consolidation in the future.
Cross-Border: Bear Market
Cross-border activity slowed dramatically in 2003 compared to previous years. The number of transactions involving a U.S. buyer or seller an international firm dropped by almost 50% in 2003 while the deal value decreased to $1.1 billion from $1.7 billion. The demonstrably slower pace of transactions mirrors Europe’s less buoyant stock markets.
However, the dearth of activity was not the case in Switzerland, as many of the country’s private banks chose either to merge with other independent firms or found a safe haven within the arms of resource-rich global financial services firms.
Real Estate and Alternative Investments: Burgeoning Activity
The real estate advisory sector experienced consistent activity in 2003 as compared to 2002. The number of transactions increased by one in 2003, although, the total deal value dropped to $361 million from $1 billion the previous year. The real estate market “was driven in 2003 by increased capital inflows, as asset values continued to appreciate in the face of weakening economic fundamentals.”
The hedge fund industry had a record year for mergers in 2002, and the pace, not surprisingly, slowed a bit in 2003. There were 10 transactions in 2003, a drop from 14 the previous year. More notably, deal value declined from $1 billion in 2002 (when the large Man Group-RMF deal took place in Europe) $198 million in 2003. Buyers showed a preference for fund of hedge fund companies, one of the reason for the smaller transactions and lower deal values. The venture capital industry experienced another uneventful year with 60 funds that raised $2.9 billion in the first half of 2003, down $1 billion from the previous year.
Looking ahead in 2004….
After two straight years of declining M&A activity, in terms of assets under management transfer and deal value, we believe the level of activity will pick up in 2004. “A shot was fired signaling the start of financial institution M&A activity, in the form of the Bank of America-Fleet Boston deal” in October 2003, said H. Bruce McEver, chairman of Berkshire Capital. “Followed by the J.P. Morgan-BancOne announcement, these transactions provide fuel for the financial services industry to witness a healthy round of deal-making in 2004.”
About Berkshire Capital Corporation:
Berkshire Capital has been advising clients since 1983 in connection with merger, acquisition, divestiture and joint venture transactions involving investment management and securities firms and related financial services businesses. Headquartered in New York City, the firm has offices in London, Denver and Philadelphia. The Berkshire Capital team consists of more than 40 professionals and support staff dedicated to our mandate, constituting the largest financial institutional group with an investment management and securities focus. As the first investment bank to target these sectors exclusively, Berkshire Capital developed an extensive proprietary transaction database, which provides a uniquely critical perspective from which to advise our clients on innovative transaction structure and valuation. Since January 1997, Berkshire Capital has completed more transactions in the investment management and securities industries than any other investment banking firm. Since inception, Berkshire Capital has advised buyers and sellers, both foreign and domestic, on almost 170 completed transactions. These transactions have involved the transfer of close to $300 billion of assets under management with an aggregate deal value in excess of $7 billion. Berkshire Capital has also completed more than 130 independent valuation/strategic advisory assignments.
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