Firms looking to grow by acquisition will become the dominant driver behind M&A in the global asset management business in the months ahead, predicts new research from Jefferies Putnam Lovell.

“With the capital markets recovering and investor fears receding, financial services M&A activity over the next 12 months will be fueled more by buyers seeking to grow than by sellers anxious to survive,” the firm suggests.

It sees the more traditional M&A catalysts of firms seeking product diversification, distribution and capital to reignite growth, and liquidity for retiring owners, returning as M&A motiavtors.

Divestitures will still account for the majority of assets under management changing hands in the next 12 months, it allows, however it also believes that “the quest by fund firms for global clients and more robust investment capabilities will resume in earnest”.

Additionally, it predicts that financial institutions that sell their asset management arms will retain minority stakes to participate in economic upside, bridge pricing gaps, and cement strategic and distribution links. It also foresees firms considering public offerings later this year and early in 2010.

“Independent firms are likely to reemerge as sellers and begin testing the waters in late 2009 and more seriously in 2010, to address succession and estate planning issues, and distribution, particularly in the retail fund market,” it says.

While it predicts a return to more growth-oriented M&A in the mainstream business, the firm also says that deals in the alternative asset management sphere will, in the near term, “be driven primarily by survival and positioning for the next bull cycle.”

“Private equity buyers, though largely absent from the most recent wave of divestiture activity in asset management, will resurface, eager to deploy capital as higher quality independent managers return to the M&A markets,” it adds.

In the financial technology sector, the firm says that the effects of intense scrutiny from regulators on risk management and compliance, coupled with investor demand for independent, third-party oversight, will drive deal volume. “Divestiture activity may slow as public markets re-open, providing banks with an alternate avenue to raise capital. The push by regulators globally for centralized clearing of OTC derivatives will power transaction activity among securities brokerages and exchanges,” it forecasts.

“Scale advantages will continue to drive consolidation activity among financial technology players, particularly in the administration and financial processing sectors,” it says. “Investments in clearing houses and electronic trading platforms are likely to dominate the M&A landscape as banks and brokerages attempt to combat the effects of pricing compression generated by the industry’s structural reforms.”

IE