Finance

Morgan Stanley and Eaton Vance’s $7 billion tie-up is the latest in a wave of asset manager M&A. Here are 4 firms that could be the next target. (MS)

  • Morgan Stanley said on Thursday that it’s buying Eaton Vance in a deal valued at $7 billion, the latest deal in a wave of consolidation in the active asset management space. 
  • Deals like Franklin Resources and Legg Mason’s tie-up earlier this year, Invesco and Oppenheimer, Amundi and Pioneer, and Janus Henderson have squeezed out the industry’s mid-sized players.
  • Industry insiders, bankers, and consultants pinpointed for Business Insider which firms may be the next targets for the industry’s biggest players as they jockey for position.
  • Visit Business Insider’s homepage for more stories.

This story was first published in February 2020, and was updated on October 9, 2020 to reflect Morgan Stanley’s Eaton Vance acquisition. 

Morgan Stanley’s move to buy $7 billion investment manager Eaton Vance is the latest example of intense consolidation in the active management industry, a space that’s fallen under pressure in recent years amid changing investor preferences — and commanded the need for size to survive.

The tie-up came months after asset management giant Franklin Resources closed on its $4.5 billion Legg Mason deal, and a week after the Wall Street Journal reported activist hedge fund Trian Fund Management had taken sizeable stakes in asset managers Invesco and Janus Henderson as part of a plan to agitate for a combination. 

The flurry of activity in the space gets at the pressure these managers have faced amid a wider industry shift to passive from active investing.

Read more: Why Morgan Stanley’s $7 billion bid for a storied asset manager gives it a ‘remarkable leg up’ on rivals and signals more deals to come

“While the importance/benefits of scale in the asset management space continues to be a topical theme (i.e. IVZ/JHG), we think this deal should strengthen expectations for ongoing consolidation, providing support for stocks related to that theme,” the UBS analyst Brennan Hawken wrote in a report to clients Thursday, referring to the stock tickers for Invesco and Janus Henderson. 

FILE PHOTO: Nelson Peltz founding partner of Trian Fund Management LP. speak at the WSJD Live conference in Laguna Beach, California October 25, 2016. REUTERS/Mike Blake

Nelson Peltz, the chief executive of Trian Fund Management.
Reuters

Insiders and industry experts say there are several managers that could be next in line as takeover targets. Earlier this year, Credit Suisse analysts predicted more consolidation. 

“In the asset management space, we look for more strategic transactions in growth segments (private markets, ESG, solutions, ETFs) that help managers improve their organic growth,” Credit Suisse analysts wrote in February. 

Pressures on the active asset management industry have only mounted during the 11-year-long bull market, which has made low-cost index funds and ETFs even more attractive to investors. 

Some targets, like Wells Fargo Asset Management’s unit or Waddell & Reed’s Ivy Funds, may be spun-off. Others, like Russell Investments and Putnam Asset Management, have been on the sale block, sources say — but the right suitors and prices have not come along yet. 

The need for scale may force prospective buyers’ hands. 

“We find many asset managers are struggling with differentiation, the pricing squeeze, performance hoppers, and client retention,” Carolyn Armitage, a managing director at Echelon Partners, told Business Insider.

“Many have chosen to add wealth management services to their offering to help redirect the client’s focus to the overall relationship with the firm and the goal-based financial planning services offered,” she said. “Others are opting to create enhanced scale by consolidating or merging/selling into larger organizations.”

Here’s why insiders say those four firms are ripe for the picking:

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