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Jefferies Putnam Lovell Projects that Expansion Will Supplant Survival as the Dominant Driver of M&A in the Global Asset Management and Financial Technology Sectors

With the capital markets recovering and investor fears receding, financial services M&A activity over the next 12 months will be fueled more by buyers seeking to grow than by sellers anxious to survive, according to Jefferies Putnam Lovell, the investment banking group of Jefferies & Company, Inc. focused on the global asset management and financial technology industries.

While divestitures will still account for the majority of assets under management changing hands in the next 12 months, the quest by fund firms for global clients and more robust investment capabilities will resume in earnest, according to a new Jefferies Putnam Lovell report, Winds of Change: First-Half 2009 M&A Activity in the Global Asset Management, Broker/Dealer, and Financial Technology Industries.

In the financial technology sector, the intense scrutiny by regulators on management of risk and compliance, coupled with investor demand for independent, third-party oversight, will drive deal volume. Divestiture activity may slow as public markets re-open, providing banks with an alternate avenue to raise capital. The push by regulators globally for centralized clearing of OTC derivatives will power transaction activity among securities brokerages and exchanges.

“There’s growing confidence the worst of the economic crisis has passed and would-be buyers are re-emerging,” said Aaron Dorr, New York-based Managing Director at Jefferies Putnam Lovell.

Among the trends Jefferies Putnam Lovell expects to unfold in the next 12 months are:

  • Seller motivations of the past nine months – capital needs and survival – will be supplanted by more traditional M&A catalysts: product diversification, distribution and capital to reignite growth, and liquidity for retiring owners.
  • Financial institutions seeking to sell captive managers will retain minority stakes to participate in economic upside, bridge pricing gaps, and cement strategic and distribution links.
  • Resurgent asset inflows and the wide gap between listed and private sale multiples will lead managers (and their parent companies who desire liquidity) to consider the public markets again in late 2009 and early 2010.
  • Independent firms are likely to reemerge as sellers and begin testing the waters in late 2009 and more seriously in 2010, to address succession and estate planning issues, and distribution, particularly in the retail fund market.
  • Listed asset managers, emboldened by plush multiples and with their most pressing issues behind them, will more actively pursue acquisitions.
  • Alternative asset manager deals in the near term will be driven primarily by survival and positioning for the next bull cycle.
  • Private equity buyers, though largely absent from the most recent wave of divestiture activity in asset management, will resurface, eager to deploy capital as higher quality independent managers return to the M&A markets.
  • Scale advantages will continue to drive consolidation activity among financial technology players, particularly in the administration and financial processing sectors.
  • Investments in clearing houses and electronic trading platforms are likely to dominate the M&A landscape as banks and brokerages attempt to combat the effects of pricing compression generated by the industry’s structural reforms.

About Jefferies

Jefferies, a major global securities and investment banking group, has served companies and their investors for more than 45 years. Headquartered in New York City, with offices in more than 25 cities around the world, Jefferies provides clients with capital markets and financial advisory services, institutional brokerage, securities research and asset management. Jefferies & Company, Inc. is the principal operating subsidiary of Jefferies Group, Inc. (NYSE: JEF: www.jefferies.com). Jefferies International Limited, a UK-incorporated, wholly owned subsidiary of Jefferies Group, Inc., is authorised and regulated by the UK Financial Services Authority.

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