Financial institutions M&A: Asset management | White & Case LLP International Law Firm, Global Law Practice
Financial institutions M&A: Asset management

Financial institutions M&A: Asset management

Increasing competition, pressure on costs and changes in investor behaviour have already led to some consolidation in the industry. Much more is on the horizon

Current market

  • Upward, significant

We are seeing

  • Movement away from traditional fund management models
  • Increased regulatory burden
  • Technological developments
  • Lower margins (costs and competition from passive strategies)
  • Disruptive behaviour/new entrants
  • FCA review of fund management industry

Key drivers

  • Increased use of passive investment strategies
  • Asset managers are responding to increased competition from 'alternative' service providers
  • Established banks seeking to shore up balance sheets through non-core disposals
  • Consolidation driven by economies of scale and synergies
  • Global players focusing on key growth markets
  • Growing international, private equity and 'non-traditional' buyer interest in asset and management businesses
  • New technology and emergence of disruptive new entrants
  • Market disruption from regulatory change:
    • MiFID II, which is expected to lead to higher overhead costs due to restrictions on commission-based arrangements with brokers and more stringent fee transparency requirements
    • EU GDPR, which will necessitate significant upfront investment and lead to higher ongoing compliance costs due to direct compliance obligations on both controllers and processors of customer data as well as elevated reporting standards

Challenges

  • Local regulatory intervention (e.g., UK Financial Conduct Authority's (FCA)) lashing out at the charging of 'dealing commissions' for research and French Autorité des marchés financiers' consultation into conditions for implementing redemption gates on open- ended funds)
  • Brexit

Trends to watch

  • Market consolidation, as asset managers seek to build scale in response to shrinking profit margins and rising regulatory costs, across all market participants
  • Increasing customer expectations. UK fund managers are expanding into international markets to meet growing customer demand for global products
  • Competing with international fund managers in European markets
  • Jostling for preeminent service provider status amidst ongoing market structure changes, for example, becoming the 'go to' provider of high-margin products/ services
  • Reaction to disruption from fintech innovation
  • China and US inbound investment into Europe (weaker £/€ means cheaper for US/China buyers)
  • Some banks stepping back from asset management while others stepping up

Our M&A forecast

Significant uptick in consolidation activity at all levels of the market and growing international buyer interest. A number of notable market players have already announced consolidation plans.

 

Publicly reported examples


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