Daily News: February 28, 2012

PwC: Asset Management M&A Outlook Brighter for 2012


Volatile markets, increased regulatory and economic uncertainty, decreasing availability of debt funding, and differences in valuations between buyers concerned with overpaying and sellers reluctant to accept lower prices made 2011 the least active and lucrative year for mergers and acquisitions (M&A) in the global asset management industry since 2006. However, potential divestiture of asset management divisions by European banks, continuing improvement in valuations and stronger interest from buyers are likely to make 2012 a better year, as detailed in the new PwC report, “Asset Management M&A Insights: The Way Forward.”

After the progress seen in 2010, last year was disappointing, with global deal values declining by 48 percent compared to 2010 and global deal volume falling 25 percent. There were 639 deals announced in 2011, compared to 848 in 2010. Even at the height of the financial crisis, more deals were being done. Many proposed deals did not close because buyers lowered their offers and sellers ended negotiations rather than accept lower prices.

There are signs of a potential increase in M&A activity in 2012, including progress made by some European banks potentially preparing for the divestiture of their asset management arms as they seek to bolster their balance sheets and meet new capital requirements. In addition, valuations are starting to show some improvement albeit within a wide range, with the most attractive asset managers seeing valuations nearing historical averages as the U.S. economy shows more signs of recovery. Overall, however, valuations are still below pre-crisis levels.

“Beyond positive economic signals, the asset management sector could undergo further consolidation,” said Sam Yildirim, US asset management M&A leader, PwC. “Sector’s earnings have been hit hard in terms of lower revenues and higher costs. Both traditional and alternative sectors are fragmented and asset managers are facing pressure to expand their product offerings to deal with changing asset flows and capture a greater share of their clients’ asset allocation and geographic footprints in order to have local expertise in developing countries and become truly global,” he said.

To obtain a copy of the full report, click here.