2023 M&A Review & Outlook

M&A in 2023 was strong despite the market’s volatility

Alternatives, asset management, and wealth management deal-making was on par with 2022’s highs

• Despite a volatile market climate, rising interest rates, geopolitical uncertainty, and fears of a recession, deal-making in 2023 remained on par with 2022

• Buyers were hesitant to pursue large transactions but the need for long-term growth and strategic positioning encouraged deal-making

• A record 416 alternative, asset management, and wealth management transactions were announced in 2022.  In 2023, M&A deal volumes decreased only 8% to 384 with the majority of deals being in the wealth management sector

• Given the market’s appreciation in 2023, AUM transacted also increased from $1.6T to a new high of $1.9T in 2023

• Key themes driving transactions in 2023 included the continued need for scale, technology and digital transformation, ESG, high-growth (e.g., alternative investments, emerging markets), navigating regulatory complexity, adapting to changing client demographics and preferences (more personalized, digital-first services), and cross-border expansion. There was also a renewed interest from PE investors

Consolidation in the wealth management sector continued during 2023

• Deal-making in the wealth management sector remained strong despite increasing borrowing costs and market uncertainty

• There were 286 wealth management transactions in 2023; representing a nominal 3%decrease from 2022's all-time highs

• Wealth management deal-makers sought opportunities to consolidate, vertically integrate, broaden their product and service offerings, and expand distribution channels (e.g., Franklin Templeton’s $1.3B bid for Putnam Investments)

• A large proportion of transactions in 2023 involved wealth managers acquiring other wealth managers - highlighting the strategic importance of achieving scale (e.g., UBS’s acquisition of Credit Suisse created a wealth management institution with a combined $5T in AUM)

• Despite the collapse and restructuring of Silicon Valley Bank, the regional banking crisis that followed, and a more restrictive risk environment, 2023's high M&A volumes underscored the strong fundamentals within the wealth management sector

Deal-making in alternatives maintained momentum in 2023

• The deal-making momentum in alternatives continued in 2023

• There were 73 transactions in 2023 vs. 86 in 2022. Of those transactions, 38% were private equity investments, 33% were in credit, 23% were deals in real asset platforms (real estate, etc.), and 5% were in hedge funds.

• Asset managers were the heaviest investors in alternatives

• The largest deals were concentrated in the credit space (e.g. Sound Point’s acquisition of Assured Guarantee, making it the 4th largest CLO manager globally)

• •Strong macro-economic factors such as inflationary expectations, slower growth, and “higher-for-longer” interest rates are creating opportunities to enhance returns, increase yield, and reduce volatility via alternatives

• Widely considered a growth business, 2023 saw increasing investor demand and supply for alternative investments, direct lending, and private credit solutions in the marketplace. Innovative investment vehicles and technological advancements are also broadening access to alternatives (traditionally only available to institutional or ultra-wealthy investors)

While deal-making in asset management was at all-time lows, increased activity in the later half of 2023 sparked optimism

• M&A is at its lowest point since 2016

• Shifts to lower-fee products and poor market conditions have dampened M&A in asset management. In 2023, deal volumes dropped an additional 31% to a new low of 25

• For those active in the market, new distribution channels, product diversification, personalization, and operational efficiencies were deal rationales often cited to counteract slowing organic growth. Vertical integration was also a key theme as deal-makers looked to combine asset management’s products with wealth management’s or banking’s distribution capabilities

• The squeeze on fees, digitization, changing customer demand and demographics, growing interest in customization (direct indexing), and a focus on passive investing continues to influence asset management

• During the last six months of 2023, an uptick in deal activity was observed

• Rithm Capital’s acquisition of Sculptor, TPG’s acquisition of Angelo Gordon,  and MetLife’s purchase of Raven Capital are demonstrative of a growing interest in the alternatives sector

Outlook: Optimistic that M&A will pick up

• Deal-makers are opportunistically positioned. “If the cost of capital eases even modestly, the floodgates of M&A may begin opening as private equity firms seek to deploy a record $2.6 trillion of dry powder”. There is also an increasing inventory of private equity owned assets that need to be monetized. And, while some sponsor-owned companies may remain private longer, there is a growing sentiment that minority stake sales, recapitalizations, or reinvestments are in play

• Strategic buyers are likely to conduct more small or mid-sized acquisitions such as divestitures or add-on transactions as companies look to streamline their businesses or raise capital

• Downward pressure on fees continues to drive the need to boost AUM, consolidate, achieve scale, vertically integrate, contain expenses, acquire new technology, and capitalize on the popularity of multi-asset vehicles (private equity, CLOs)

• The rise of artificial intelligence, increasing importance of environmental, social, and governance (ESG), increasing regulatory complexity, and the need to address changing customer preferences for digitization, customization, and access to alternatives will all influence deal-making in 2024

• A renewed focus on passive investment strategies will continue to change the landscape of asset management as retail and institutional clients seek more than just index funds that track to a benchmark

• Traditional asset management deal-makers are likely to remain on the sidelines until markets begin to rebound. But, there is some optimism that the economy has marked its low and will begin a recovery

• These unique conditions are shifting the focus to diversification, passives, alternative asset management, and fixed income. As such, transactions in the alternatives space look to continue as industry players seek to capitalize on opportunities to drive new growth