News
April 03, 2005
NEW YORK—April 4, 2005 – Berkshire Capital Securities LLC is pleased to announce the publication of the 2005 Investment Management Industry Review, our annual overview of the trends and transactions in the asset management industry. Overall, the number of transactions in the industry remained steady in 2004, at 133 versus 135 deals in 2003, while transaction deal value increased 15% to $10.7 billion, from the previous year’s $9.3 billion, though still less than one-third of the record high total in 2000. The transfer of assets under management almost doubled, at $720 billion in 2004, from $375 billion in 2003.
Wealth Management: Ahead of the Race
For the second year in a row, wealth management was the hottest sector in the asset management industry. Total number of deals rose from 51 in 2003 to a record high of 64 in 2004. However, deal value declined drastically from $6.3 billion in 2003 to $2.1 billion in 2004 then signaling a trend towards smaller, more strategic transactions. Mellon Financial was aggressive on the acquisition front with three purchases of wealth management shops in 2004 to bring the firm to a total of seven acquisitions in the last four years.
As firms continue to compete for talent, technology, products and clients, most observers expect the deal-making environment to remain strong in the years ahead.
Institutional: Awakes from the Slumber of 2003
The institutional sector came back to life in 2004 with an increase in number of deals, transaction value and transfer of assets under management. The total number of transactions in 2004 was 36 versus the prior year’s 27 and value increased to $4.9 billion from $1.4 billion.
The largest institutional deal of 2004 involved Friends Provident’s acquisition of F&C, a subsidiary of the Dutch firm Eureko. Many of the sales last year were driven by restructurings on the part of parent companies. Insurers such as Cigna and MetLife sold their institutional businesses to concentrate on core activities.
Mutual Funds: Scandals Cause Industry to Pause
The mutual fund industry continues to be the cloudy spot in asset management. The number of transactions declined to its lowest level since 1998, with 15 deals in 2004. However, there was a trebling in deal value to $2.2 billion in 2004 from $700 million in 2003, mainly due to Wells Fargo’s acquisition of the scandal tarnished Strong Capital.
While the industry is still dealing with the aftermath of the scandals, subsequent financial penalties and regulatory burden have led some weary mutual fund players to question whether they should partner out this capability or quit the industry all together.
Cross Border: Trans-National Activity Beginning Recovery
The extent of cross border activity in 2004 was similar to that of the previous year, with 30 transactions announced against 28 in 2003, although the combined deal value of $4.3 billion was almost three times the aggregate in 2003 ($1.6 billion). The implied larger scale of transactions primarily reflected those transactions occurring between a U.S. and an international firm, as such deals accounted for 80% of the total deal value in 2004 but just half the number of deals.
Many believe this may be the best time for European banks to be looking to partner with U.S. firms, considering their strong earnings, high cash holdings and currency advantage, yet only a handful of European financial firms went searching for investment management opportunities outside their home markets last year.
Real Estate and Alternative Investments: Limited Activity to Date
The real estate advisory sector continued to experience limited activity in 2004. The number of transactions decreased from four in 2003 to three in 2004, and the total deal value dropped to $51 million from about $360 million the previous year. The primary real estate advisory deal last year involved a company in the timber business.
The hedge fund industry continued to generate a great deal of buzz in 2004, despite transactions being halved in 2004 to five from ten in the previous year. However, deal value jumped from about $200 million in 2003 to over $1 billion in 2004. For the second time in three years, the hedge fund industry recorded the largest transaction in the asset management industry, with JPMorgan Chase acquiring a majority stake in Highbridge Capital Management for up to $1.4 billion. On the private equity front, three deals were completed in 2004.
Looking ahead in 2005….
After two straight years of declining M&A activity, in terms of number of transactions there was a slight increase in the overall transaction value and a significant jump in the assets under management changing hands. Generally, there is an overcapacity in all areas of the asset management industry creating an atmosphere of continuing consolidation.
About Berkshire Capital Securities LLC:
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 about 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 more than 185 completed transactions. These transactions have involved the transfer of over $317 billion of assets under management with an aggregate deal value in excess of $7 billion. Berkshire Capital has also completed more than 155 independent valuation/strategic advisory assignments.
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