In a competitive Canadian wealth and asset management market, acquirers continue to purchase alternative asset managers focused on private debt and private equity, as well as those running specialized or differentiated strategies. Strong investor demand and higher expected returns make alternatives an attractive option in an environment of low management fees, low interest rates, and increasing competition.
Management fees are declining and a growing list of FinTech companies and non-traditional competitors are entering the industry.
Salaries and fund administration costs are fixed, driving the need for scale.
With respect to operations, investors now expect modern and personalized digital wealth management services. On the investment side, asset managers are seeking capabilities in areas with higher potential returns such as alternatives.
Asset managers are considering acquiring wealth managers to grow revenues by offering additional services to clients to expand share of wallet.
Median and average three year revenue CAGR for Canadian asset managers are 2.3% and 7.4%, respectively.2 (Standalone publicly traded Canadian asset managers)
As wealth managers and advisors retire, there are opportunities for asset managers to acquire clients, AUM, and new service offerings.
A byproduct of these trends has been growing demand for alternative assets such as private equity, real estate, and private credit as both asset managers and investors navigate a competitive investment environment. Underfunded corporate and public pension funds, for example, are increasingly looking to alternatives as they seek higher yields. A CIBC Mellon survey of 50 pension funds found that over the next 12-24 months, 90% plan to increase their allocation to private equity, while 86% plan to reduce investment in infrastructure.3 On the other side, investors seeking higher returns have also contributed to assets under management in alternatives now exceeding $10 trillion, according to Preqin.4
Accordingly, buyers continue to acquire specialist managers to take advantage of growing demand for alternatives and to expand existing direct equity/credit investing capabilities. For example, 58% of pension funds are looking to increase in-house management of real estate, increasing the demand for real estate managers.5
Next, we have detailed three examples of transactions influenced by the aforementioned drivers in which acquisitions were made to drive significant revenue and/or cost alignments.
Details
On Apr 12, 2021, a $1.01 billion cash transaction saw Ameriprise Financial, through Columbia Threadneedle, acquire Bank of Montreal’s (BMO) EMEA asset management business. The acquisition expands Colombia Threadneedle’s AUM to $617 billion and has an implied EV/AUM multiple of 0.7%.
Rationale
This acquisition allows Colombia Threadneedle to gain a substantial presence in the European institutional market, increasing its AUM in the geographical region of EMEA by 40%. Columbia Threadneedle also gains a new strategic relationship with BMO Wealth Management, providing the opportunity for BMO’s North American wealth management clients to access a range of Columbia Threadneedle investment management solutions.
Our view
The transaction enables BMO to maintain focus on its wealth management business in North America, where it has scale, and redeploy capital in areas which yield higher returns and have larger opportunities for growth. This strategy is apparent in the recent transaction to acquire a US-based agency broker and algorithmic trading specialist, Clearpool.
On March 22, 2019, Fiera Capital paid approximately $74 million to acquire Integrated Asset Management (IAM), vaulting Fiera Private Lending into one of the leading non-bank private lending platforms in the country. The acquisition, with an implied EV/AUM multiple of 2.39%, saw Fiera Capital acquire $3.1 billion of AUM and committed capital from IAM.
The acquisition strengthened and diversified Fiera Capital’s private alternatives lending platform. It gave Fiera significant capabilities in the private debt sector, in addition to expanding its real estate platform. As a result, Fiera boosted its ability to provide clients with one of the most comprehensive offerings of alternative investment products available in the marketplace today.
We expect to see more M&A across the sector as more founders of alternative managers seek a liquidity event and money managers look to bolster capabilities in the alternatives space.
On July 10, 2018, The Toronto-Dominion Bank (TD) agreed to acquire Greystone Capital Management Inc., the parent company of Greystone Managed Investments Inc., for a net purchase price of $792 million. The acquisition had an EV/AUM multiple of 2.20% and closed on November 1, 2018.
TD gained enhanced investment strength, broadened expertise, and more comprehensive investment solutions. The bank also gained access to high-net-worth (HNW) clientele for cross-sell opportunities.
At the time, this acquisition made TD Canada’s largest money manager and allowed TD to distribute and expand on Greystone’s alternative offerings.
The five key areas to consider when assessing an M&A transaction
1. Deal considerations
As a buyer/seller, are you obtaining the best result the market has to offer?
Are you positioning your business to the market appropriately and targeting the right parties?
Are you navigating competition and using competitive pressures to your best advantage?
Do you have a complete understanding of various deal execution risks and a plan to address each of them?
Are you getting the best terms that the market has to offer?
2. Valuation
3. Fit
4. Target readiness
5. Execution risk
Need advice on M&A strategy, execution, due diligence, and integration? Let’s talk.
KEY CONTACT
Lisa Weatherbed Partner, Wealth and Investment Management Financial Advisory lweatherbed@deloitte.ca +1 416-874-4406
CONTRIBUTORS
Kendra Thompson National Wealth Management & Advice Leader
Peyman Pardis Wealth Transformation Leader
Ranjeet Bhide Senior Manager
Cory Lazzarato Consultant
Shaun Goffenberg Consultant
Source: Deloitte Casey Quirk Research
Source: Capital IQ – Standalone publicly traded Canadian asset managers. Market data as of Apr 14, 2021.
Source: CIBC Mellon: “In Search of New Value: How Canadian Pension Funds are Preparing for a Post-COVID-19 Environment,”
Source: Preqin, Forbes: “What’s Driving The Alternative Assets Market Today?
Source: Capital IQ, Mergermarket, Company website and Press Releases
Source: Bloomberg, Capital IQ, Company website
Source: Newswire, Capital IQ, Company website
