Looking beyond ‘plugging the gaps’ with M&A

Investment executives have flagged the need for careful deliberation ahead of making a deal, with M&A in the asset management sector ideally focusing on long-term value creation rather than simply filling product gaps. 

The asset management industry continues to see an uptick in merger and acquisition (M&A) activities in 2024, with firms such as Magellan, Regal Partners and Pinnacle all active in the space. 

Over 80 transactions have been completed offshore over the year to date, more than half of which involve alternative investment managers, according to investment bank Piper Sandler’s latest report in September.

Locally, the figure stands at around 25 transactions, spanning multi-affiliate acquirers (5), private equity (4) and asset managers comprising the bulk of the transactions (16).

Speaking in a recent webinar, Scarcity Partners’ managing partner Adrian Whittingham posited the volume of transactions could be even higher than has been captured, demonstrating clear interest and demand in this space.

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But he cautioned managers against rushing into deals, stressing the importance of aligning strategic, cultural and long-term growth goals to ensure that such transactions lead to sustainable value for investors and shareholders.

“There’s so much focus on listed companies because they’re listed, the information is readily available. But just because a listed company completes a transaction and they have a certain capability to fill, that doesn’t mean they’re going to get growth on that straight away or even in the next three years,” Whittingham explained.

Earlier this year, Morningstar discussed how active asset managers are looking at niche asset classes to diversify their product ranges. In its Q3 industry pulse report for fund management, it noted recent business wins mainly reflected flows into non-traditional asset classes like private debt, private equity, and specialised fixed-income strategies against weak flows into equities managed by traditional managers.

A similar report from Deloitte in October also stated having a diverse product mix needs to be “front and centre” for investment managers in order to grow revenue and differentiate themselves from peers.

But Whittingham said M&A should not be approached with a mindset of ticking off capabilities in a spreadsheet, and should instead consider a wider set of strategic factors. A truly successful merger requires more than just complementary products, he argued.

“Strategically it might make sense to do [a deal], but the execution can be really far apart,” he remarked. 

“Any strategic rationale for M&A shouldn’t be just about ‘we have a product gap’,” he said.

“It needs to be – does the culture fit for this transaction? Does it make sense for our shareholders or our investors? Can we get a realistic return on it over a five- to seven-year view, not in the next 12–24 months? 

“And what they are offering, is it truly differentiated? Do they have the ability to pivot to offer something unique, rather than offering something that is commoditised?”

Rita Da Silva, wealth and asset management leader at EY Oceania, agreed that scale and consolidation will continue to dominate conversations in the new year.

“With returns, margins and profitability all being impacted by market conditions, scale and consolidation will remain at the forefront for the wealth and asset management industry in 2025, and we can expect to see further merger and acquisition activity – including within the superannuation sector.

“Low expense ratios are also likely to persist over the coming year, as investor interest in low-cost funds continues to grow and active management is increasingly incorporated into ETF structures. 

“In this environment, expanding product range to include alternative investments, such as private credit, may prove to be an effective strategy for growth.”

More broadly, Whittingham applauded firms for taking a proactive approach to evolving their strategy in the face of passive competition and fee cuts. 

“Full credit to some of them for actually doing something, for working hard to try and pivot their business. Too many businesses you can see just decay over time. I hope they do particularly well.”

2024 deals

The last year has already seen a number of strategic partnerships in the market within asset management. 

In August, Magellan Financial Group announced its acquisition of 29.5 per cent of the parent company of Vinva Investment Management, Vinva Holdings, for $138.5 million. Since the completion of the deal, Magellan has launched three funds in association with Vinva in the areas of Australian equities, global equities and long-short equities.

Multi-affiliate Pinnacle also unveiled a number of deals in 2024, most recently taking a 22.5 per cent stake in US-based private markets firm VSS and a 25 per cent equity stake in UK-based multi-asset manager Pacific Asset Management in November. It also acquired a stake in UK-based global equities firm Life Cycle Investment Partners which was set up by a former team of Royal London Asset Management (RLAM).

Platinum Asset Management saw significant interest from Regal Partners to acquire the business, although discussions between the two have since ceased earlier this month. It is understood Platinum has also received interest from Challenger, Wilson Asset Management and Paradice Investment Management. 

The firm also unveiled its own institutional partnership deal called Platinum Partner Series as part of its turnaround strategy which will see it offer exclusive access to top-performing global institutional managers who lack a significant wholesale/retail presence in Australia. The objective of these new relationships is to build a portfolio of subadvisory opportunities over the next three years to expand its reach and grow the business.

Moreover, Insignia Financial received a preliminary non-binding proposal from US private equity firm Bain Capital, although it went on to reject the deal.