Independent asset managers accounted for a large proportion of company sales in the SME segment of the financial industry in 2022. A merger wave is building up, Deloitte partner Anthony West tells finews.com.
Takeovers and mergers of Swiss SMEs increased by another five percent last from a record high in the previous year, according to an annual study from Deloitte.
Of the total of 244 M&A transactions, eight percent took place in the financial sector where among independent asset managers, external asset managers (EAMs) were particularly active.
EAMs in the Lead
Of the 22 financial industry deals, the majority was among EAMs for the first time, Anthony West (pictured above), partner and head of corporate finance Switzerland at Deloitte, confirmed to finews.com. Movement among EAMs was primarily brought about by the change in the regulatory environment requiring firms to apply for a Finma license by the end of 2022.
Rap on the Knuckles
Deloitte expects a similar level of activity this year as in the last. Sales and acquisitions are likely to accelerate next year when many licensed EAMs will have to undergo their first audit, says West, explaining the forecast.
The number of all transactions in the financial sector could soon double. Small EAMs with less than half a billion in assets under management may then find themselves, particularly under the gun, and West expects 30 to 50 deals annually starting in 2024.
Foretaste From Germany
The market shakeout is unlikely to slow anytime soon as West illustrates what awaits Switzerland based on developments in Germany. There, the number of independent asset managers has shrunk from 5,000 to 380 institutions within the last decade.
West said he would not be surprised if between 500 and 1000 companies throw in the towel within the next ten years in Switzerland, where, according to Finma licensing applications, around 1700 EAMs are still active.
Shoe Doesn't Always Fit
With mergers of smaller EAMs with assets under management of between 300 million and 500 million francs, it makes sense to transfer the assets instead of doing a share transaction, West explained.
In such an asset deal, only the assets under management are transferred and a review of the clientele and other economic, legal, and financial circumstances is waived.
Well-Known Buyers
Last year the transaction between Zurich-based asset manager Wergen & Partner and Aquila Group attracted the attention of EAMs. Managing director Wergen justified the cooperation to finews.com, among other things, with the obligation to solve a Finma license. Wergen would have had to hire as many as four additional staff to provide the services to comply with the terms of the license.
At the end of May, Zurich-based asset management boutique Investarit joined Quaestor Coach. Quaestor Coach wants to acquire companies and integrate them into its platform, something they had already done in the Netherlands.
In the same month, asset management group Focus Financial Partners made its first big catch in Switzerland. The American firm took over Geneva-based asset manager Octogone, which employs around 100 people and has almost 6 billion francs in assets.
Strong Shoulder
Private banking activity is also likely to perk up this year after remaining relatively quiet in 2022, according to West. At many private banks, the interest-earning business, which has prospered again after the turnaround in interest rates, has not fully compensated for earnings weaknesses in other areas. A lack of growth, profitability and sustainability could prompt more private banks to lean on a partner in 2023, according to West.
