Asset manager M&A streak unlikely in near-term, says UBS
Large-scale M&A involving UK asset managers is unlikely in the near-term, according to analysts at UBS, despite recent media and market speculation.
Shares in London-listed fund houses made gains following news of the Janus/Henderson merger in early October as investors contemplated which of the other investment firm could be next in terms of a possible deal.
However, equity analyst Michael Werner is skeptical that there will be further large takeover deals tied to UK asset managers in the near future.
“We think the recently announced Janus/Henderson deal was unique in that it offered a very complimentary," Werner wrote in a note to clients on Monday.
"The key justification for the Janus/Henderson deal is that they should be able to (after completion of the deal) leverage each other's distribution networks (Janus in the US and Henderson in Europe)."
He added that the complementary nature of the two companies' product sets should allow it to offer a more comprehensive solution to institutional clients and stem six years of outflows at Janus.
Compressing fee margins, increasing regulatory compliance costs (Mifid II), pressures including the FCA Market Study and competition from passives are clear arguments for consolidation.
However, Werner says large deals in the asset management space are challenging because it can result in overexposure to a single asset manager by clients, especially when there is significant geographical and/or product capability overlap.
“Because most institutions impose internal exposure limits to a single asset manager, the combination of two large asset managers could breach these limits for clients with mandates at both the target and acquirer, driving attrition.
"Based on the dearth of large-scale M&A deals in the sector over the past decade, apparently we are not the only ones sceptical of large-scale deals in this sector.
In fact, the only time UBS expects large scale M&A deals in this sector is when an asset manager is divested from a larger institution, such as a bank.
For investors that want to invest in potential consolidation candidates Werner can see the appeal of exposure to smaller UK asset managers, where he expects a greater likelihood of M&A activity.
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