Bank of New York Mellon Corp.'s agreement Wednesday to buy Insight Investment Management Ltd. for $387 million from Lloyds Banking Group PLC could force some of the other large custody banks to step up acquisition efforts.
Based in London, Insight Investment specializes in so-called liability-driven investment solutions, active fixed-income asset management, and alternative asset management. Founded in 2002, it is the third-largest manager of U.K. pension funds. The deal would add $131.9 billion in assets under management for Bank of New York Mellon.
Ronald P. O'Hanley, the president and chief executive of BNY Mellon Asset Management, said that when the deal is completed it wants to offer Insight's services in other markets, including the United States, Germany, and Japan.
"For the foreseeable future, they will be the dominant player in LDI solutions in the U.K., but given our position in other markets, we see an opportunity to broaden what we offer to existing clients globally with these capabilities," he said. LDI refers to management of liabilities for pension plans, insurance companies, or foundations.
Andrew Marquardt, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, said that, on its face, the deal is relatively small. It would add 14% to Bank of New York Mellon's assets under management to give it $1 trillion, but he said it could hasten the other three large trust banks to respond with deals of their own. He said all three are well capitalized and could be ready to buy.
"I think BNY Mellon, Northern Trust, and State Street have been pretty consistent in their thought process - everyone wants to be opportunistic," Marquardt said.
But making deals will not necessarily be easy, he said. "I think everyone is always interested in deals, but there are higher hurdles because of the uncertainty in the markets," he said.
O'Hanley said he expects banks to make more asset management acquisitions this year. "Whenever you go through a period of stress, it tends to lead to deals," he said. "I think there will be more deals, but I don't know that there are more buyers out there, though private equity seems extremely interested."
Industry executives have been debating whether now is the right time to aggressively pursue wealth management acquisitions. Some have advocated acquiring now to take advantage of ready capital and lower prices. Others have advocated a wait-and-see approach.
Analysts said regardless of how cautious they may appear, companies are always looking to buy. "For the right price there is always an opportunity," said Rus Prince of Prince & Associates in Shelton, Conn. "The issue is pricing more than anything right now. Interest in acquiring has started to quietly intensify in the last six to eight months. People are saying they aren't going to buy, but they are still looking all over the place for the right deal."
As for Bank of New York Mellon, O'Hanley said it will continue to be opportunistic. "We are the quintessential strategic buyer," he said. "We don't buy because we need to, we buy because it adds to our strategies. We are not a collector of businesses. We are focused on growing organically and if an acquisition brings something more to our client base, we will do it."
According to SNL Financial, there have been 32 asset management acquisitions during the first seven months of this year, including BlackRock Inc.'s acquisition of Barclays Global Investors from Barclays PLC. There were 41 asset management acquisitions during the first seven months of last year.
Marquardt said it is an attractive time for large financial services companies to buy asset managers because "it makes sense to buy something that diversifies revenue and is less capital-intensive." He said he expects more such deals this year. For example, Bank of America Corp. continues to shop Columbia Asset Management.
"The primary areas of focus for growth via acquisition is asset management and asset servicing businesses," Marquardt said. "These deals are a good indication that capital has been rebuilt and they are comfortable with where they stand."
Burton Greenwald of BJ Greenwald Associates in Philadelphia said he expects more deals "if this market remains at current levels or equity prices continue to move upward."
"You are probably entering a more realistic world to make deals," he said. "When markets took such a beating, asset managers were reluctant to sell at such low multiples. Now, prices are getting back to normal and we should see more deals."