Fundhouse Insights Investment Clarity Blog
As part of our manager research process for a given fund, we will evaluate the corporate entity employing the investment team. Over the last five years, our team has had to focus more and more attention on fund groups that are merging with and/or acquiring other firms. What does our data show?
Looking at the numbers: Fund groups have been partaking in M&A for two broad reasons. The first is to achieve better scale and product diversification within the newly created and larger combined entity. Examples include Columbia Threadneedle (and the more recently announced acquisition of BMO’s EMEA investment business), Janus Henderson, Aberdeen Standard (now ‘abrdn’), BlackRock/BGI and Jupiter Merian. The second is to become closer to the client by entering distribution. Examples would be M&G’s purchasing Ascentric, Schroders purchasing Cazenove and Benchmark Capital, Invesco purchasing Intelliflo, BNP’s stake in Allfunds, and Franklin Templeton’s stake in Embark, among others. Looking back over the 10 years to 2019, we see a large increase in fund group M&A, as shown in the graph (source: Fundhouse and The Investment Association).
What are our findings? Although individual examples may differ, when assimilating the data on M&A, in aggregate it throws out some very interesting observations and we discuss these general points below.
- Communication becomes vague and erratic for extended periods: Details around the impact of the deal are almost always unclear and large changes (e.g., team mergers and changes to executives) tend to be announced without warning, which is unsettling for clients and the investment teams within the fund groups.
- Change is almost guaranteed: We usually observe significant change, whether it be to executive leadership, investment and client teams, location, products, incentives, or operational infrastructure.
- It becomes all-consuming, particularly the bigger deals: We find that the executives focus much of their attention on the deal and the post-deal integration, rather than the existing business.
- Often new CEOs are appointed, bringing second rounds of change: Examples include Stephen Bird at abrdn and Richard Weil at Janus Henderson bringing their own changes to the table following the merger.
- Staff depart more frequently, and firms are no longer employers of choice: For years after the deal, we find higher investment staff turnover on average and new joiners are not always of equivalent experience.
- Clients experience change in servicing, products and fund managers: This is the key point. We often find that clients are understanding and take a pragmatic view on M&A within the fund groups they support. But so frequently there is more change than expected and clients eventually lose patience. We have also seen numerous examples of combined AUM post-merger being lower than pre-merger (of the individual entities).
- Not all M&A is negative: We appreciate that not all M&A is negative and that a change in ownership can improve matters, like reducing key person risk, enabling ownership succession and diversifying revenue. Although our data suggests that such deals are rare (around 1 in 10), these positive examples do exist.