In Reversal, Some Brokers Now Hunt For Asset Managers
30 May 2009 - 6:27AM
Dow Jones News
For brokerages looking to add scale to their asset-management
business, some believe it's a good time to explore acquisition
opportunities.
As some smaller and midsize asset-management firms struggle to
survive due to the decrease in clients and revenues in the bear
market, more firms will look to sell. This bodes well for firms
looking to increase their asset-management business; they might be
able to acquire firms at cheaper prices than a year ago owing to
market conditions.
The search for asset managers to buy is something of a
turnaround. In recent years, Merrill Lynch, now a unit of Bank of
America Corp. (BAC); and Smith Barney, a unit of Citigroup Inc. (C)
that is joining a joint venture with Morgan Stanley's (MS)
brokerage arm on Monday, sold their asset-management arms. One
issue was the inherent conflict of interest when brokers sell funds
affiliated with their firm.
Asset managers are also under pressure to sell after
distribution channels have narrowed in the industry; some brokerage
firms, for instance, have closed or merged. "There has been a
consolidation of the distribution channel, and the sheer number of
advisory firms is declining," said Mark Halverson, senior executive
in Accenture's capital markets practice.
Burt Greenwald, a Philadelphia fund consultant, said, "If a
company fails to have a real marquee fund, it is very difficult to
get distribution."
However, the asset management business can be a large revenue
source for firms, and once the market turns around, firms will
likely start to see client inflows.
Merger and acquisition activity might pick up in the sector over
the coming months as firms will want to partner to increase
distribution.
"Brokerages are looking to increase revenues and market share by
offering a broader scale of products to serve investors," said
Halverson.
One brokerage exploring possible deals is Ameriprise Financial
Inc. (AMP). Chief Executive James Cracchiolo said Friday at the
Sanford C. Bernstein Strategic Decisions conference that
opportunities are coming up "more and more" in the market. The two
areas the brokerage may look to augment are its retail-distribution
and asset-management capabilities.
Some firms have already hung up the for sale sign. For example,
Bank of America has expressed plans to sell its Columbia Management
Group, which it acquired during the FleetBoston Financial
acquisition five years ago. Bank of America is looking to sell the
division because of its need for capital.
According to reports, one potential buyer for Delaware
Investments, part of Lincoln National Corp. (LNC), is Aberdeen
Asset Management PLC (ADN.LN).
However, price might be a challenge. Small and medium firms want
more muscle behind their distribution, but they might not be
willing to accept the low price that a large firm is offering, said
Greenwald. The feeling of strong firms is that "now is a good time
to pick up the crippled firms around the battlefield," he said,
adding, firms are hoping that eventually their offers will be
accepted.
-By Jessica Papini, Dow Jones Newswires; 201-938-2437;
jessica.papini@dowjones.com