Asset managers are increasingly turned to mergers and acquisitions in an attempt to solve the problem of slowing growth and falling fees. In five years, PricewatehouseCoopers expects 20 percent of asset managers to be acquired or eliminated.
In PwC’s fourth quarter dealmaking report, released on Thursday, U.S. asset and wealth management deals leader Gregory McGahan wrote that the sector has continued to consolidate, “driven partly by the stark fact that AUM has shrunk at 30 percent of mutual fund managers during the past five years.”
One challenge facing asset managers, according to PwC, is concentration, with assets becoming increasingly concentrated among a small number of top firms. The consulting and auditing firm expects this trend to continue, prompting more mergers and acquisitions.
Last year, both the volume and value of M&A transactions in the asset and wealth management industry broke records, according to the report authors McGahan and Greg Peterson, financial services deals leader at PwC U.S. This includes 50 deals alone in the last quarter of 2019.
Over the course of the whole year, PwC tracked a record 212 transactions, worth $41.6 billion — more than double the value of sector M&A activity in 2018. Charles Schwab Corp.’s November purchase of TD Ameritrade accounted for a big slice of deal value, coming in at $26 billion.
“We expect the dealmaking momentum to continue,” the report’s authors wrote. “Persistent fee pressure, declining AUM at many firms, and a convergence of AWM and insurance will be big challenges for second- and third-tier firms, likely making 2020 another blockbuster year for consolidation and more AWM deals.”
Insurance companies, under pressure from low interest rates, are attracted to the steady sources of revenue that asset managers can provide, and deals between the two sectors have been accelerating, according to PwC. Assured Guaranty’s recent purchase of BlueMountain Capital Management is one example of such a transaction.
Also driving dealmaking activity is the wealth management sector, where deal volume increased 18 percent in the fourth quarter compared to the third quarter of 2019. There were 105 deals over the course of the year, a 31 percent increase from 2018, but the value of the transactions fell significantly year-over-year. PwC explained that many of the deals involved small family offices, where the value isn’t disclosed in many cases. The sector is also driven by what PwC calls repeat acquirers, including Mercer Global Advisors, which announced four deals in the fourth quarter.