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Divestitures to remain dominant source of asset management M&A

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Transaction volume in the global asset management industry in the third quarter of 2009 was dominated by larger financial institutions shedding investment management businesses, and that trend will continue in the months ahead, according to Jefferies’ financial institutions group. 

Over two-thirds of Q3 2009 global asset management M&A activity – 68 per cent – represented divestitures, a record level in a three-month period, according to Jefferies.

Prominent examples include Bank of America’s announced sale of the long-term asset management business of its Columbia Management subsidiary to Ameriprise; Bank of New York Mellon’s announced acquisition of Insight Investment Management from Lloyds Banking Group; and the purchase by Sumitomo Trust & Banking of Citigroup’s 64 per cent interest in Nikko Asset Management.

By contrast, divestitures represented 38 per cent of the total deal volume in the third quarter of 2008. Year-to-date through September 2009, divestitures totalled 57 per cent of asset management transactions, a record for a nine-month period, compared with 32 per cent in the year-earlier period.

“As larger financial institutions refocus on strategic strengths, we expect they will continue to separate asset management distribution from manufacturing, keeping the former and seeking solutions for the latter businesses,” says Aaron Dorr, a New York-based managing director within Jefferies financial institutions group. 

Deal volume in the July to September 2009 period totalled 38, compared with 66 announced transactions in the third quarter of 2008. Managed assets transacted rose to USD749bn from USD728bn a year earlier. Disclosed deal value climbed to USD4.5bn from USD4.2bn in the third quarter of 2008, and the median deal value was USD140m, almost twice the median USD73m in the third quarter of 2008. 

For the first nine months of 2009, deal volume totaled 113, compared with 174 in the year-earlier period. Approximately USD3trn in managed assets transacted year-to-date in 2009, against USD1.3trn in the first nine months of 2008. Disclosed deal value totalled USD18.4bn thus far in 2009, led by the announced sale of Barclays Global Investors to BlackRock for USD13.5bn. In the first nine months of 2008, disclosed deal value totalled USD11.9bn.

While the number of divestitures is on the rise in 2009, transactions involving alternative asset managers declined, along with cross-border deals. Alternative deals represented 24 per cent of the total in the third quarter of 2009, and 25 per cent for the first nine months. This is down from 27 per cent in the third quarter of 2008 and 33 per cent for the first nine months of 2008. The number of announced cross-border deals fell to 26 per cent in the third quarter of 2009 from 35 per cent in the year-earlier period, and to 19 per cent year-to-date 2009 from 34 per cent in the first nine months of 2008.

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