Asset and wealth management deals insights: Q1 2019
Deal value and volume overview
Deals volume in asset and wealth management was robust during the first quarter of 2019, rising 55% above the total during Q1 2018. But volume did not keep pace with the record activity during the fourth quarter of 2018. Wealth management firms continued to be the most active sub-sector, accounting for 62% of the announced deals during the first three months of 2019.
During the first quarter, announced AWM deal volume totalled 45 transactions, with a total announced deal value of $12.2 billion. Deal value rose during the quarter, driven by the announcement that Brookfield Asset Management will acquire 62% equity in Oaktree Capital Group LLC for $4.7 billion (implied transaction value was $11.7 billion).
“Green shoots sprang up in financial services deals in early 2019. We expect the trend to accelerate as firms extend geographical reach, boost tech savvy and stake out new distribution, products and services.”
Asset and wealth management outlook
We expect that 2019 will probably become another significant year for deals in asset and wealth management. Asset managers are taking aggressive measures to overcome headwinds such as the top-line impact from the rise of passive investing and industry-wide pressures on both margins and productivity. The year started off with robust deal volume and the announcement of the $11.7 billion Brookfield Asset Management and Oak Tree transaction. As we have said before, publicly traded managers have an advantage in executing large scale deals using stock to engineer such transactions, giving them an edge in transformative M&A.
Several geopolitical concerns may inhibit global deal activity, including rising interest rates, quantitative tightening, China-US trade tensions, the UK’s protracted effort to leave the EU and signs of a possible slowdown in global growth. PwC's 22nd Annual Global CEO Survey indicates that optimism has fallen among AWM CEOs compared with the previous few years. One-third of respondents expect global economic growth to decline in 2019. Also, only a third of CEOs say they are "very confident" about their company's revenue prospects in 2019—the lowest level in five years.
Our survey also revealed that 29% of AWM CEOs expect to enter into a merger in the coming year, and 41% are currently seeking a strategic alliance or a joint venture. The finding highlights the perception that transactions can help overcome the AWM industry’s many challenges. The rational for transactions varies. Some firms aim to fill gaps in their product line, gain new distribution capabilities or expand their geographical reach. Other firms seek to partner with a technology provider that will upgrade their systems and help keep pace with the spread of artificial intelligence and big data.
The survey of AWM CEOs aligns with our forecast that the creation of alliances and joint ventures will continue at a strong pace in the coming months and years. Partnering with another asset manager, or with the provider of a technology solution, is viewed as an effective, low-risk strategy, particularly for independent, privately held firms. Such alliances could mean buying a minority stake or entering into a joint venture with an overseas manager to aid distribution of products. Or it could mean partnering with a fast-growing, high-value FinTech firm.
Indeed, asset managers face a need for technologically advanced talent that is unlikely to fade anytime soon. The industry needs to increase efficiency by deploying tech-savvy employees, increasing scale and streamlining methodologies, even as it rebalances costs and margins. Although confidence among AWM CEOs has fallen a bit, many industry leaders still believe in the ability of their firms to achieve organic growth. They can do so by differentiating distribution and products, leveraging new technologies, building a 21st century workforce and strengthening capabilities through “smart M&A.”
