Renewed appetite - Alts manager M&A heats up

Renewed appetite - Alts manager M&A heats up

Over the next 12–24 months, an uptick is expected in Mergers and Acquisitions activity across a wide range of transaction types, from minority stake sales to large-scale M&A.

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Renewed appetite - Alts manager M&A heats up

Consolidation and strategic partnerships will allow alternative investment (AI) firms to offer a more diverse range of products and strategies to investors, provide access to new distribution channels, and facilitate succession planning and the ability to retain top talent.

Three key factors that may continue to fuel M&A activity

  1. Search for size, scale, distribution
    In the desire to diversify, AI firms will seek to increase scale, offering an array of alts products and strategies. PE firms may expand into adjacent asset classes such as real estate, infrastructure, and hedge funds.
  2. Succession planning
    Rather than wind down their funds after a successful investing career, managers are seeking to build a firm with a lasting legacy. A sale transaction (including minority stake sales) can help enable generational transition and broaden the ownership structure. Concurrently, such action can provide a mechanism to attract and retain the "next generation" of fund managers.
  3. Convergence with traditional asset classes
    In the coming years, asset managers that have traditionally focused on the “long-only’’ segment of the market may turn to M&A as a tool to acquire alpha generation skills and to capitalize on the growing "retailization" of alternative strategies—the increasing availability of liquid alternative investments to retail investors through registered investment (mutual) funds and retirement accounts.

As the appeal of M&A grows, it is important for buyers to keep top of mind both the unique and sometimes fickle nature of the business they are acquiring as well as the management team they are investing in. Conducting a comprehensive due diligence review of both the manager and its funds under management, and structuring deal terms that take these factors into consideration, can greatly limit the risk of the deal and preserve the value a buyer expects from the transaction.

Read the article for a few ideas to consider in an attempt to limit risk and preserve value and for more information on the key factors that may continue to fuel M&A activity

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