Is the asset management industry ripe for M&A?

BlackRock's purchase of Barclays Global Investors could spur more consolidation

Greggory Warren, CFA 29 September, 2009 | 1:01PM

Although the asset management industry was turned completely on its head following the collapse of the credit and equity markets last year, there has been very little consolidation to speak of this year. The biggest deal of 2009, BlackRock's $13.5 billion acquisition of Barclay's Global Investors (BGI), a unit of Barclays, has certainly sent shockwaves through the industry, but much of the deal making (including BlackRock-BGI) has been focussed on divestitures from financial institutions looking to streamline their operations or improve their capital structure. With assets like Bank of America's Columbia Management Advisors (CMA) and Morgan Stanley's Van Kampen fund business still being shopped around, we expect this trend to continue through the end of the year.

What we're less likely to see, however, is rampant consolidation among the remaining publicly traded asset managers, many of whom are still struggling to get back on their feet in the aftermath of the bear market. Much as we believed that a large number of deals would not occur earlier in the year (when most asset managers were struggling to figure out what was happening in their own house, let alone what was going on in someone else's), we think the recent rally in the markets, which has improved the operating results and stock prices of just about every publicly traded asset manager, could be a stumbling block for consolidation.

That's not to say that there isn't interest in mergers and acquisitions, as top managers from Franklin Resources to Legg Mason have noted a desire to add to their product lineups in the wake of the bear market. But there seems to be a disconnect right now between what sellers believe their businesses are worth and what buyers are willing to pay for them--much as what was rumoured to have occurred this summer with Janus Capital Group and its bidders. We believe that over time this will likely work its way out, but with several major banks and other financial institutions looking to sell their asset management businesses, it may be difficult for pure-play asset managers to get a premium valuation in the near term.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Barclays PLC91.55 GBX-1.42

About Author

Greggory Warren, CFA  Greggory Warren, CFA, is a senior stock analyst with Morningstar.

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