If you thought that M&A activity has reached a crescendo in 2006 it only means that you are keeping up with current events. In fact, 2006 is on pace to set a new record for the number of fund industry deals, according to the number crunchers at Putnam Lovell NBF. So far this year nearly a trillion dollars -- a number that would confound Dr. Evil -- has changed hands.
During the first six months of the year 89 asset managers went on the auction block. That is up from 59 during the first half of 2005. The total value of deals during the first half of the year hit $13.5 billion, a 65 percent increase from the $8.2 billion in deals last year, according to Putnam Lovell. Total assets involved in the deals reached $992 billion, up from $737 billion last year.
The largest deal of the year was BlackRock's purchase of Merrill Lynch Investment Managers. That deal was also the largest in the history of the asset management business, according to Putnam Lovell. The second largest deal was the management led buyout of Gartmore's European business that was financed by Hellman & Friedman.
All of that activity has pushed prices higher, according to the New York City-based investment banking firm. Multiples of EBITDA are up to 11, compared to just 9.5 in a typical deal two years ago.
The drivers of the deals, according to Putnam Lovell, are pressures for financial services firms to dispose of their fund management operations so they can focus and reinvest in their core operations, sustained enthusiasm for alternative investments, increased interest in the sector from private equity firms flush with cash, and a pickup in cross-border transactions.
In all of 2005 there were 141 asset management deals involving AUM of $1.1 trillion and an aggregate price tag of $17.5 billion.
Steven C. Pierson, managing director and Putnam Lovell's head of Investment Banking, said that he still sees a "buoyant" market for deals despite the recent downturn in global stock markets. He also predicts strategic and financial buyers to continue to make deals as they try to purchase market share in the traditional and alternative segments of the asset management industry. Another hot segment for deals is the financial technology segment that supports fund management businesses, according to Pierson.
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