North American Asset Management Trendspotter: Deal volume hits near four-year high

This content was originally published by ION Analytics.

North American asset management M&A activity hit its highest level in deal volume in almost four years in the first half, according to Mergermarket data.

The value of disclosed deals hit over USD 22bn in 1H24, up 16% from the same period in 2023, according to Mergermarket data. This is the highest half-year deal volume registered since 2H20’s record-breaking figure of USD 32.3bn, which remains the largest H1 deal volume recorded this century, according to Mergermarket data.

Among the key drivers behind this heightened activity are an ongoing wave of consolidation in the wealth management industry and large asset managers’ growing appetite for acquiring private market investment firms, Mergermarket data shows.

The 1H24 data was dominated by one acquisition, BlackRock’s [NYSE:BLK] USD 12.5bn acquisition of alternatives investment manager Global Infrastructure Partners (GIP) in January. Strip away that deal and the value of disclosed deals drops to USD 9.5bn, 50% lower than the year-earlier period.

The number of deals totaled 179 in the first half, an 8% drop from the 195 recorded in the same period last year.

Large deals dominating M&A transaction data is common, 2H20’s blockbusting M&A deal volume – was driven by two headline-grabbing deals that accounted for over two-thirds of that period’s total deal value: Altimar’s USD 13.5bn acquisition of Owl Rock Capital Advisors and Morgan Stanley’s [NYSE:MS] announcement it was buying Eaton Vance for USD 9.8bn.

The five largest transactions of 1H24 accounted for 85% of the total deal value – or USD 18.6bn – and included BlackRock’s deal for GIP, private equity firm Advent International, and the Abu Dhabi sovereign wealth fund’s USD 2.5bn acquisition of a 20% stake in wealth manager Fisher Investments, and institutional investors including CalSTRS buying stakes in Generate Capital, a US-based infrastructure investment specialist, for USD 1.5bn.

Private market targets

Today’s challenging fundraising environment has been a catalyst for many asset managers to seek out M&A targets, according to Sarah Davis, an M&A attorney who focuses on asset management deals at law firm Ropes & Gray.

Investors are also increasingly looking to allocate to larger, more diversified asset managers, says Davis, leading many asset managers to seek out attractive private market firms to acquire.

“Having a platform with multiple strategies and geographies puts larger managers at the top of the list for LPs,” Davis says.

“For Blackrock, adding GIP allows it to ramp up its position as a key player in the alternatives space. And, in particular, expand into infrastructure, a strategy that is in high demand.”

General Atlantic’s acquisition of UK private equity shop Actis in January was similarly motivated by a desire to add infrastructure strategies to its fund range, Davis says. The details of the transaction were not disclosed.

Other M&A transactions that highlighted this private market firm acquisition trend in 1H24 included GCM Grosvenor’s [NYSE:GCMQ] strategic investment in newly-launched private equity boutique Invidia Capital Management; Canadian company Brookfield Asset Management [NYSE:BN] snapping up US-based alternatives investment firm CastleLake; and GQG Partners [ASX:GQG] buying stakes in a trio of private equity firms, Avante Capital, Cordillera Investment Partners and Proterra Investment Partners, for its new private capital business.

Private credit specialists have also been popular targets for asset managers, according to Gregory McGahan, financial services deal leader at PWC.

“If you think about credit and infrastructure, people may be willing to pay a little bit more there given the fact that those are just hot assets,” McGahan says.

Two notable transactions in 1H24 involving credit firms were alternatives investment firm Ares Management’s [NYSE:ARES] acquisition of private credit manager BCI Capital in March and Goldman Sachs Asset Management [NYSE:GS] buying a minority stake in alternative credit manager Kennedy Lewis the following month.

McGahan says that the next two years could provide asset managers that have a private credit offering with a “significant opportunity for upside” as he expects both public and private companies to drive a new wave of debt refinancing.

Succession planning drives wealth deals

While the largest deals by transaction volume in 1H24 involved mostly asset managers, the vast majority of the M&A activity in the first half of the year involved wealth management firms.

One trend that is fueling this wealth management M&A activity is the succession planning that is being carried out by the founders of smaller wealth management firms.

“Selling a portion of interests to an investor allows founders to monetize their stake in the firm, and also make room for the next generation,” says Davis.

She cites the Fisher Investments transaction as an example of a founder acknowledging that an outside investor would “ensure stability in the future when the business transitions to the next generation.”

This succession planning trend is in turn making the wealth management industry a fertile hunting ground for private equity firms looking for growth investments. Wealth Partners Capital, Flexpoint Ford, and TA Associates were among the other private equity firms that were active in the first half and acquired stakes in registered investment advisors, known commonly as RIAs.

Large national wealth management players have also been capitulating on this trend by buying up regional shops to expand their networks. Mercer Global Advisors and LPL Financial [NASDAQ:LPLA] were among the big groups that were active during 1H24 through their acquisitions of MDK Private Wealth Management and Atria Wealth Solutions, respectively.

McGahan says he expects the consolidation we’ve witnessed in the wealth management space to continue over the next year.

“And I expect the private equity players that have invested here will continue to invest and look to figure out how to better run those businesses,” McGahan says.

Broken deals

Despite the healthy number of deals recorded in the first half, 179 in total, McGahan says he witnessed a number of “broken deals” over the first half of the year.

“There are situations where we’ve entered into contractual relationships with our clients to do diligence and the message is simply ‘let us get to a signed term sheet and then we’ll move forward,’” he says. “Weeks go by, and the two parties just can’t get to a mutual understanding.”

Asset management M&A has also seen many “phase zeros and phase ones,” McGahan says, with desktop reviews that don’t make it further in the transactional process.

The deals are often undone by significant valuation gaps between asset management buyers and sellers and ongoing challenges surrounding financing these deals, McGahan adds.

Despite the processes on ice, McGahan still believes asset management will see healthy M&A activity in the coming quarters.

“Asset managers are very focused on how they’re going to continue to grow their business and how they’re going to continue to accumulate assets,” he says. “And they’re very interested in continuing to look to new sources of capital to diversify their businesses.”