Jefferies Putnam Lovell Expects 2009 M&A Activity to Be Paced by Divestitures, Distressed Sales

Sizable asset management transactions, largely absent in 2008, are likely to reappear in 2009, driven by distressed selling of investment divisions by commercial banks and insurers, consolidation among alternative firms, and opportunistic buying by financial players that are emerging with fewer wounds from a historic and ongoing global credit crisis, according to Jefferies Putnam Lovell, the investment banking group of Jefferies & Company.

When ranked by number of deals, 2008 was the second most-active year on record in the global asset management industry, 217 compared with 242 in 2007. With $1.99 trillion in assets under management transacted, 2008 also ranked second overall, tied with the 2007 total of $1.99 trillion, and below the peak of $2.65 trillion set in 2006, according to Jefferies Putnam Lovell. However, based on disclosed deal value, M&A activity in 2008 fell dramatically from the previous year's total of $52.1 billion. With $16.1 billion in disclosed deal value, 2008 was only the fifth-highest year on record. Only three deals announced in 2008 exceeded $1 billion in purchase price, compared with fifteen $1 billion-plus transactions in 2007.

"The most active buyers over the past decade, namely commercial and investment banks and insurance companies, are now becoming sellers of, or seeking strategic partnerships for, their asset management businesses," said Aaron Dorr, New York-based managing director at Jefferies Putnam Lovell, in a press release. "We expect pure-play asset managers and private equity firms to be the biggest beneficiaries of this massive reshaping of the industry," he said. "European banks are at last facing up to their success as distributors and their failure as manufacturers of investment management services," said Kevin Pakenham, London-based managing director of Jefferies Putnam Lovell, in the release. "This year, we will see the further emergence of a strong independent sector in Europe, following the well-established US model," he said.