A need for consolidation has been evident across the asset management space over the past year. As macroeconomic headwinds and market volatility have begun to bite, demand for scale through these turbulent times has grown at a commensurate rate.

Rathbones’ [LON:RAT] GBP 839m (EUR 958m) acquisition of Investec Wealth & Investment may become the catalyst for rivals to act.

In its announcement, Rathbones says that “inorganic growth has played an ever more important role across the UK wealth sector”.

The tie-up will leave the combined entity with approximately GBP 100bn under management and administration.

Smaller firms are under even greater pressure. Spiralling inflation and choppy markets in the past 12 months have hiked costs and eaten into profit margins, and defensive dealmaking has become an increasingly attractive proposition.

Joining forces

The sector has remained fairly robust despite the recent headwinds.

In total, 119 deals worth a combined EUR 2.8bn have been recorded in the sector in the year to date (YTD), per Mergermarket data. This represents a 13.8% fall in the deal count versus the equivalent period last year, a relative success when considering the current state of dealmaking across EMEA.

M&A in the financial services sector, for example, has slumped 22.2% in comparison to 2022 YTD.

Prior to this year, the asset management space had already been on the rise. EMEA asset management hit 307 deals announced during 2022, the sector’s highest annual total since 2013.

As a consequence, the space has been one of the most active within financial services in recent years. Last year, asset management pacts represented 41.5% of deals in the sector, its highest share on record. As it stands, 2023 is on course to account for an even larger cut, currently standing at 43.6% of deals.

Private-equity (PE) firms, likewise, have been active in the sector in recent times. A total of 19 buyouts were signed in the sector in EMEA in each of the past two years, the highest point on record. This outpaced the previous peak of 18 during 2007.

While uptake has been slow in 1H23, prospects of further activity remain. PE interest in the space is likely to concentrate on small-cap and bolt-on deals.

STAR Capital-backed Hawksford, for example, told this news service last year that it may look for opportunities to merge with peers as a “defensive” stance.

On the horizon

There remains a series of names in the potential pipeline, which could come to fruition in the second half of the year.

Quilter [LON:QLT] is one such example. The listed UK-based wealth and asset manager has long been followed by our colleagues at The Morning Flash as a potential takeover candidate. Last year, the firm saw reported interest from NatWest Group, as well as a series of PE players.

M&G [LON:MNG] has similarly seen rumours of a possible takeover, with Australian group Macquarie [ASX:MQG] and Schroders [LON:SDR] reportedly considering offers.

Jupiter Fund Management [LON:JUP] could be another name to watch. The Morning Flash
stated last year that its share price and operating performance may prove to be catalysts for potential activity.

So, while headwinds have subdued large swathes of dealmaking this year, pressure continues to mount on asset management firms to act.