The recently announced merger between Janus and Henderson is a clear sign that well-structured deals make sense in the current difficult market, says Mike Clements (pictured), Head of European Equities and manager of the OYSTER Continental European Selection fund at SYZ Asset Management…
The industry has enjoyed some fruitful years since the financial crisis. A tailwind of QE-inspired markets and inflows have seen revenues surge, but this has masked some of the challenges that have been building up. However, growth is beginning to stall, assets are being lost to ETFs and margins are under pressure. Fund pricing has come under enormous scrutiny, with closet index funds often blamed for delivering investors inferior returns and poor value for money. The rapid rise of the ETF industry, and new regulations governing how asset managers and distributors are paid is forcing the active fund management industry to rethink its business model. M&A is an obvious solution for an industry that has been consolidating for years.
Boutique fund houses will survive and perhaps even prosper so long as they innovate and continue to generate alpha. However, many fund houses are stepping up the search for scale and breadth in order to combat the industry’s challenges. The Janus Henderson deal is a clear example of this. The merger will create a combined entity with USD320 billion of AuM and instantly launch it into the top 50 of global asset managers. Crucially the products and the distribution footprint are complementary, meaning that the deal is not just about cost synergies. Scale and the ability to cross sell franchise funds through the combined entities’ client bases in Europe and the US will create a global player.
We like asset managers for many reasons including the scalable business models, attractive margins and strong cash generation. However, with flows drying up, M&A could be key in unlocking further value for shareholders. Speculation is rife that there are more deals on the way. Pioneer has been lined up for sale. The likes of Schroders, Amundi and Man Group have large war-chests ready for when the right deal comes along, and even the smaller Italian managers like Anima and Azimut are on the hunt for bolt-ons.
While the US managers are no doubt trawling through Europe looking for cheap deals, future buyers may come from further afield. Janus Henderson is interesting for other reasons beyond the up-front strategic rationale for the merger. It is a truly global deal and not just because it involves fund houses from both sides of the Atlantic. Dai-ichi, the Japanese insurance company and Janus’ largest shareholder has committed to support the deal, raise its stake in the combined entity and extend its strategic partnership with Janus Henderson. It has effectively signed off on the merger. Interestingly Dai-ichi has also recently formed a joint venture with Mizuho Financial to create one of Asia’s largest asset management firms. They are both looking to expand overseas via partnerships and maybe even by M&A. Mizuho itself has recently bought a stake in Matthews International, the San Francisco based investment house, to complement its existing large holding in Aberdeen Asset Management. Perhaps in time it will achieve its global ambitions by bringing these various interest together.
Japanese institutions’ involvement in asset management is quietly growing for now, but their global growth ambitions are clear. Could they be the future consolidators in an industry that is increasingly going global? Maybe. What is clear for now is that asset management M&A will feature prominently in the coming months and years. Janus Henderson could be a useful template for those planning on being involved
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