M&A activity in the asset management industry is likely to pick up in the year ahead due to ongoing divestitures and the revival of independents, according to Jefferies Financial Institutions Group.

In a report published Monday, the firm predicts that industry divestitures will continue during the first half of 2010, “and then taper off while transaction activity involving independently-owned asset managers, encouraged by more stable markets, begins to ramp up.”

It also expects that pure-play asset managers, which were the primary buyers of asset management businesses in 2009, will continue to be at the leading buyers in 2010. And it says that higher valuations for asset managers has also rekindled interest in private firms considering public offerings.

In 2009, private equity firms were relatively quiet, but Jefferies says they will be more active in 2010. “Industry fundamentals remain compelling to private equity investors which have significant stores of capital ready to deploy,” it says.

It also sees a revival in cross-border deal activity “as asset managers continue to seek growth overseas and to develop their global product and distribution capabilities”. Moreover, regulatory reform initiatives designed to limit proprietary trading and private equity investing by mainstream banks will generate opportunities for independent alternative asset managers, it notes. And, regulatory reform could also drive greater deal activity in the financial technology and securities brokerage/services sector, it says.

“Despite the severe markets of early 2009, the global asset management industry rebounded as market conditions improved following the March lows,” said Aaron Dorr, a New York-based managing director within Jefferies’ Financial Institutions Group. “While 2009 was a very volatile year for the industry, it also proved to be a very transformative one, setting the industry on a course to consolidate further in the post-Great Recession era.”

IE