investment management m&a

Investment management M&A

Many market participants remainkeen to move into higher marginalternative investment sectors or to build scale in their existing area of focus.

Deal activity

Henderson Global Investors beat a wide range ofcompeting bidders to acquire New Star AssetManagement plc, the distressed retail asset manager,aiming to increase their assets under managementfrom 50bn to 60bn to become the fifth largest UKretail manager.

Aberdeen Asset Management acquired a significantportion of Credit Suisse Asset Management increasingits assets under management to some 150bn andbecoming the largest listed UK fund manager in theprocess, with the intention to realise synergies andexpand business globally.

Funds Advisory

OutlookAmid continued volatile markets and economicuncertainty, the asset management sector continues tosee strong merger and acquisition activity.

Many market participants remain keen to move intohigher margin alternative investment sectors or to buildscale in their existing area of focus. Private equityinvestors also remain interested in the assetmanagement sector, attracted by potential bargainsas well as by the regularity of cash flows.

At the same time, larger financial institutions such asbanks, whose balance sheets and regulatory capitalsurpluses have been repeatedly dented by credit andfair value losses, look to divest themselves of non-coreoperations.

Challenges and opportunities in the sector

Falling asset values, particularly severe in certain assetclasses.

Institutional funds shifting to alternative products. Multi-boutique manager model, combining scale and

margin. Regulatory complexity and capital efficiency. Innovative distribution opportunities.

Some acquisition drivers

Cost synergies and product rationalisation for managers. Acquisition of higher yielding assets under management. Joint ventures or asset swaps to build scale in a particular

area. Entry to overseas markets or market share gain.

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2 GLG Partners, one of the largest hedge managers inEurope, acquired the UK asset management businessof Socit Gnrale to diversify its long only productsto its existing client base.

F&C Asset Management plc acquired REIT AssetManagement Limited, a European real estatemanager with assets under management of 4bn, tocreate a combined real estate manager with 8bn ofassets under management.

Aberdeen Asset Management plc acquire GoodmanProperty Investors for 109m, and by adding itsassets under management of over 7bn, is seeking tocreate one of the largest UK property managers andproviding critical mass in the UK market in a particularasset class.

Acquisition of IMS Group, a multi-manager with5.1bn of assets under management, by BNP ParibasInvestment Partners, with the new business operatingrelatively autonomously under BNPs multi-managerplatform, FundQuest.

Man Group plc and Millenium Capital Managementhave acquired smaller hedge fund managers, whilstbanks and funds managed by banks, such asGoldman Sachs, continue to build minority stakes in arange of hedge fund managers.

Deal issues in the current environmentIn a time of challenging market conditions, buyers andsellers need deal management and well executedstrategy. Typical deal issues include:

Quality and nature of assets under management a careful understanding of the composition andhistorical development is key to assessingsustainability of fees and strength of margins.Geographic, sectoral, client and asset classconcentrations, as well as proportions of retail versuslower margin institutional funds are key factors.Product range and investment performance are criticalto future growth particularly in falling markets invarious locations and asset classes.

Access to distribution distribution is critical,whether it be retail distribution through IFAs and fundsupermarkets or via investment consultants forinstitutional opportunities. Geographic andjurisdictional barriers continue to erode only graduallyand access to distribution into new locations, as wellas through innovative new channels, remain drivers ofacquisition activity.

lncentivisation and reward issues the past fewmonths have shown exactly how damaging losing keyfund managers can be. Understanding existingremuneration arrangements, which are often complexand varied, and the related tax obligations, as well asstructuring future incentivisation arrangements areessential not only in retaining or attracting scarcetalent, but also in ensuring bonuses are appropriatelylinked to successful performance.

Deal structuring innovative cross-jurisdictionalstructures are becoming more common, as businessesseek to ensure efficient levels of regulatory capitaland minimise tax exposures.

Post merger integration (PMI) traditionally assetmanagement mergers have focused on top linegrowth and achieving scale. Increasingly, theopportunity to achieve synergies through rationalisinginfrastructure and location, leveraging technologyplatforms and outsourcing arrangements, integratingrisk management activities and eliminatingredundancies in resourcing have been essential indelivering a return on investment in M&A.


Investment management M&A 3

More than ever, buyers and sellers need to acquire the right advisory team.

At Deloitte, we have wider, deeper and more relevant transaction experience than our competitors. We are currentlyadvising on a number of acquisitions and disposals in the sector and our team can be accessed through our websiteor more directly as follows:

Contacts

FinancialCalum ThomsonPartner020 7303 [email protected]

Stuart McLaren Partner020 7303 [email protected]

Alan WaltonPartner020 7007 [email protected]

Tom MacDonaldPartner020 7007 [email protected]

Baber DinDirector020 7303 [email protected]

Operational & PMISteve Barnett020 7007 [email protected]

Justin Nuccio020 7303 [email protected]

Key areas of focus include

Financial Revenue stream AUM Historical flow pattern Fee margin and product mix Investment performance Cost base Maintainable EBITDA Distribution channels/ costs

Operational Capital efficiency Synergy opportunities IT platform and scalability Risk management Valuation transparency & governance Collateral management Fund administration

Reward Share option scheme Bonus arrangements Pension arrangements Future incentive strategy

Taxation Tax structuring IME PAYE/NI/VAT Fund tax issues

Regulatory Regulatory capital Consolidated supervision Compliance issues Product development

RewardSally CooperAssociate Partner020 7007 [email protected]

Neville BramwellPartner020 7007 [email protected]

Stephen WoodhousePartner020 7007 [email protected]

TaxationEliza DungworthPartner020 7303 [email protected]

Ian GellyDirector020 7303 [email protected]

Fiona MonsenDirector020 7007 [email protected]

RegulatoryStuart McLarenPartner020 7303 [email protected]

Uner NabiDirector020 7303 [email protected]


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