Culture remains a key consideration for asset management firms seeking to consolidate, industry sources say.
If firms are not culturally aligned, they are bound to run into issues — “it’s just a matter of when will you have [the] problem,” says Martin Flanagan, chief executive of Invesco.
Flanagan, whose firm closed the acquisition of OppenheimerFunds in an approximately $5.7 billion deal last month, was speaking alongside panelists at the Bloomberg Invest conference last week.
Though there is a need for operational scale in the asset management industry today, Flanagan says he is wary of firms fixated on chasing scale.
Scale can bring efficiency, and enable firms to negotiate better pricing and build intellectual capital, but firms are not simply acquiring to scale, as they care about reputation and a likeminded culture, Keith Bloomfield, CEO of FWM Holdings told Mergermarket. FWM agreed to acquire Optima Fund Management, which is expected to close in the third quarter.
Independent boards of directors, trustful relationships with clients, a clear business plan, willingness to accept stock rather than cash for buyouts and prioritizing business reinvestment over dividend payments are boxes to check for ideal acquisition targets, says CEO Joseph Schmuckler at Luxon Financial, which closed its acquisition of Tradition Capital Management in May.
M&A activity in asset management grew to 253 announced transactions in 2018, up from 210 deals in 2017, according to Sandler O’Neill + Partners. Disclosed deal value was up 29% in 2018, reaching $27.1 billion.