Financial fire-sale

Divestitures lead the way as the most important source of deal flow with large financial institutions selling investment businesses, according to a survey of M&A activity by investment bank Jefferies.

In Q3, divestitures made up 68% of deal flow, a record level in a quarter. High profile deals include Bank of America’s announced sale of the long-term asset management business of its Columbia Management subsidiary to Ameriprise; Bank of New York Mellon’s announced acquisition of Insight Investment Management from Lloyds Banking Group; and the purchase by Sumitomo Trust & Banking of Citigroup’s 64% interest in Nikko Asset Management.

The 68% figure is a significant increase on the 38% of M&A activity divestitures accounted for at the same time last year. From the beginning of 2009 to the end of September, divestitures totalled 57% of asset management transactions, a record for a nine-month period, compared with 32% in the same period in 2008. And Jefferies doesn’t expect a slow-down as the year draws to a close.

Aaron Dorr, a New York-based managing director within Jefferies Financial Institutions Group, said: “As larger financial institutions refocus on strategic strengths, we expect they will continue to separate asset management distribution from manufacturing, keeping the former and seeking solutions for the latter businesses.”

Deals involving alternative asset managers, including private equity funds, have decreased as a share of M&A activity in 2009. Alternative deals represented 24% of the total in Q3 of 2009, and 25% for the first nine months, down from 27% in Q3 of 2008 and 33% for the first nine months of 2008.