M&A in Investment Management
M&A activity amongst corporate entities operating within the investment management sector continues to be driven by a range of strategic factors. This includes: a drive for scale and synergies; building distribution capability; entering new geographic markets through cross-border M&A or partnerships or; expanding into higher margin asset classes and filling product gaps. Private equity firms also remain interested in the sector, or businesses adjacent to the sector, but still part of the overall value chain, such as distributors, administrators and other service providers.
Sellers range from banks divesting themselves of non-core activities to raise capital to private owners seeking exits or combinations with larger businesses. The sector backdrop is of continued globalisation amongst larger fund managers with distribution models shifting as a result of regulation and technology while still remaining relatively local. A long tail of smaller fund, wealth and alternative asset managers also exist, which are more bespoke in terms of product, price or region. As investment performance and fee margins come under further scrutiny and the regulatory burden increases these smaller managers may seek to increase scale through consolidation.
In the current economic climate, effective M&A represents a route to growth for corporate entities, although careful planning and execution is essential.
Executing an effective deal
Executing an effective deal involves a significant number of challenges. These range from valuation issues in relation to the quality and nature of assets under management, investment performance, distribution capabilities and client concentrations, to the human capital matters which are critical to asset management businesses; how do you retain and incentivise the fund management talent, whilst keeping them aligned with long term corporate targets, within the enlarged group in the future?
Taxation and regulatory capital structuring are essential work - streams on any transaction, and deals increasingly see innovative and complex sale and purchase agreements with detailed deferred consideration mechanisms based on future earnings or assets under management, affording buyers downside protection. Finally, life after completing the deal is as important to its ultimate success – careful post-merger integration planning and implementation is fundamental to achieving the synergies promised, building a strategically aligned business and thus delivering a return on the investment made.
Deloitte’s approach to M&A
At Deloitte, we have a breadth of specialist, sector-focused knowledge across all the areas where you may need assistance in doing the right deal:
- Corporate finance advisory (deal origination and execution)
- Financial due diligence (acquisition diligence, vendor diligence and vendor assist, Class 1 transaction and reporting accountant services )
- Taxation and regulatory structuring
- Human capital (share options, bonus schemes, pension arrangements)
- Commercial due diligence
- Operational due diligence
- Debt advisory
- Business modelling
- Sale and Purchase Agreement (net asset completion adjustments, locked box, deferred consideration mechanisms)
- Post-merger integration