THE CAMBRIDGE COMMENTARY A Review of M&A Activity in the Investment Management Industry During 2017 January 1, 2018 780 Third Avenue, 7 th Floor, New York, NY 10017 (212) 826‐8290 www.cambintl.com CAMBRIDGE INTERNATIONAL PARTNERS provides top‐ quality M&A advisory services to the global investment management industry. We use our two‐plus decades of specialist experience and contacts to find, develop and structure lasting corporate relationships for our clients. We have over 25 years of experience providing transactional and related advice to the investment management industry. While based in New York, a significant portion of our business is derived from cross‐border or foreign transactions. Our extensive calling program keeps us current with managers and financial institutions globally. Cambridge prides itself on the objective, conflict‐free advice provided to clients. Our advice is untainted by investment activities and, as a member of FINRA, we follow the highest standards of compliance. Our experienced partners, who are also the owners of the firm, are fully engaged throughout the course of every assignment we undertake. John H. Temple David W. Abbott President Managing Director (212) 829‐8292 (212) 826‐8293 [email protected] [email protected] Richard H. Haywood, Jr. Managing Director (212) 826‐8294 [email protected] th 780 Third Avenue, 7 Floor, New York, NY 10017 (212) 826‐8290 www.cambintl.com A Review of M&A Activity in the Investment Management Industry During 2017 Strong equity markets and synchronized equity purchases, accounting for about growth in major economies characterized 20% of global transaction volume and 2017. International1 and US2 equities had three of the top ten – Stone Point Capital total returns of 25.0% and 21.8% and KKR acquiring Focus Financial respectively in the year. This favorable Partners, TA Associates’ buyout of Old economic climate helped mitigate but did Mutual Wealth’s Single Strategy Business, not reverse the secular headwinds being Annual Transaction Volume3 faced by the asset management industry ($ in billions) globally. Of these, the shift to passive $35.0 $33.0 management and concomitant fee $30.0 pressure among active managers remains $25.6 $26.3 $25.0 $16.1 $23.6 the most severe, but rapid changes in the $22.2 regulatory environment and the inevitable $20.0 $13.3 increase in regulatory costs have also $11.6 $14.1 $15.0 played a part. 3 $16.6 $10.0 $16.9 Not surprisingly, therefore, 2017 $12.0 $13.0 $5.0 $11.4 transactional activity, which was broadly $5.6 comparable to the last few years, $0.0 2013 2014 2015 2016 2017 continued to be driven by consolidation, both in asset management and, for Annual Transaction Count3 somewhat different reasons, in wealth 250 management. Indeed, seven of the top ten 207 transactions reflected a consolidation 200 188 178 theme, even more than the five out of ten 169 171 101 in 2016, with the Standard Life – Aberdeen 150 110 82 72 Asset Management merger leading the 90 way. Bank divestitures continued to be a 100 theme particularly outside the US, with sales by Banco BPM in Italy, ANZ and 50 106 96 99 Westpac in Australia, Citigroup in Mexico 78 79 and Société Générale in China. Themes of 0 consolidation and divestiture attract 2013 2014 2015 2016 2017 private equity so it was not surprising that Non-US Target US Target 2017 was another strong year for private 1 MSCI EAFE ND 3 Transactions involving managers with more than $200 million under management 2 S&P 500 TR 780 Third Avenue, 7 th Floor, New York, NY 10017 Page 1 (212) 826‐8290 www.cambintl.com Top Ten Investment Management Transactions of 2017 (All amounts in US$) Amount AUM % Paid Target ($bn) Acq’d Purchaser ($mn) Strategic Rationale Aberdeen Asset 383.6 100% Standard 4,670 Coming off several years of outflows caused by the Management Life industry’s shift to passive investments and Aberdeen, UK overexposure to emerging markets, Aberdeen combines with Standard Life in a no‐premium merger to form Europe’s second largest asset manager. Fortress 69.6 100% SoftBank 3,300 In a bold move typical of Chairman Masayoshi Son, Investment Group Group SoftBank extends its interests into asset management New York, NY by offering a 39% premium to buy Fortress Investment Group. Focus Financial 110.0e 70%e Stone Point 1,400e The success of Focus Financial Partners’ consolidation Partners Capital and of private wealth management firms is demonstrated New York, NY KKR by the $2 billion valuation achieved in its third refinancing by private equity. Guggenheim 36.7 100% Invesco 1,200 Invesco pays up for Guggenheim's ETF business, 60% Investments' ETF of whose assets are in smart beta products, Business reinforcing its market position as second in smart New York, NY beta and fourth in the global ETF business. Aletti Gestielle 21.1 100% Anima 810 Banco BPM, formed from the merger of Banco Milan, Italy Holding Popolare and Banca Popolare di Milano at the beginning of 2017, sells its asset management business to Anima, an independent asset manager in which it holds a 14.3% stake. Old Mutual Global 34.3 100% TA 800 Old Mutual’s plan to liquidate takes another step Investors’ Single Associates forward with the divestiture to private equity of the Strategy Business and Single Strategy business of Old Mutual Wealth, led by London, UK Management famed investor, Richard Buxton. OnePath Pensions 18.7 100% IOOF 770 The unusually named IOOF (originally International and Investments Holdings Order of Odd Fellows) becomes Australia's second Sydney, Australia largest wealth advisor as Australia and New Zealand Banking Group exits the wealth management business. Sentry 15.0 100% CI Financial 615 CI Financial underscores its position as the leading Investments independent asset manager in the Canadian market Toronto, Canada by acquiring Sentry Investments, one of the largest independent fund groups left in Canada. ETF Securities' 17.6 100% WisdomTree 610 WisdomTree moves up to ninth in the global ETF Exchange Traded ranking with this acquisition of Europe's leader in Commodities exchange traded commodities. London, UK Riverstone 27.2 12%e Petershill 500e Goldman Sachs’s Petershill Fund continues its push Holdings Fund into private equity by buying a slice of this successful New York, NY (Goldman energy‐focused private investment platform. Sachs) e: Indicates estimate 780 Third Avenue, 7 th Floor, New York, NY 10017 Page 2 (212) 826‐8290 www.cambintl.com and the Petershill Fund’s minority SoftBank, HNA and Nippon Life making big investment in private equity manager, investments. Riverstone Holdings. Last but by no means least was the Acquisitions to build market share in continuing – and accelerating – passives, and in smart beta in particular, consolidation seen in private wealth resulted in three major transactions, two management during the year. This was of which were also cross‐border particularly true in the US where a purchases by US managers, Invesco and combination of factors resulted in a record WisdomTree, of European firms. number of independent RIAs selling to Meanwhile, cross‐border activity by consolidators, other RIAs and regional and foreign managers buying into US asset community banks. management was up substantially, with ALL EYES ON A HIGHLAND FLING In the biggest transaction of 2017, Following the announcement of the Standard Life and Aberdeen Asset Henderson – Janus merger by only a few Management, both based in Edinburgh, months, the Standard Life – Aberdeen combined to form the second largest asset announcement caused a frenzy of merger manager in Europe. Mimicking the discussions in boardrooms around the Henderson – Janus deal announced the industry. Active managers, both previous year, no premium was paid and independent and institutionally owned, the merged group is headed by co‐CEOs, were forced to confront the prospect of one drawn from each company. As with rapid consolidation in the industry as a Henderson – Janus, incremental revenue response to the shift to passive investing. synergies through complementary After all, if the famously independent CEO investment capabilities and greater global of Aberdeen Asset Management, Martin distribution, and reduced unit costs Gilbert, was prepared to accept a no‐ through increased scale were cited as the premium merger, surely every asset principal strategic benefits. manager should reconsider its competitive position. The results of all Nevertheless, the combination was widely these discussions, though, have been less viewed as defensive as both firms had than impressive, with no further suffered recent outflows – Standard Life’s significant combinations announced to flagship Global Absolute Return Strategy date. One reason is undoubtedly the had suffered poor performance while difficulty in finding a dance partner Aberdeen was overexposed to poorly‐ sufficiently complementary that cost performing emerging markets. Cost savings might be expected to exceed savings are projected at £200 million revenue losses, but another has been the annually, which is 10.9% of the combined steadily advancing equity markets which cost base. have helped to mask continuing outflows 780 Third Avenue, 7 th Floor, New York, NY 10017 Page 3 (212) 826‐8290 www.cambintl.com from active managers. Indeed, Standard shows no slow‐down in the heavy Life Aberdeen’s first trading statement outflows of the prior year. PASSIVE CONTINUES TO MAKE INROADS It is not necessary to look further than based, or smart beta, ETFs where pricing Vanguard’s expected net inflows of $350 is higher, and where Invesco’s resulting billion in 2017 for confirmation that 19.9% market share is within sight of passive management continues to make iShares’ market leading 21.0%. inroads. Driven by reasons of cost and risk control, it is not a trend we expect to For WisdomTree, the largest specialist reverse anytime soon.