Asset managers desirable M&A targets: bankers

By Svea Herbst-Bayliss

NEW YORK (Reuters) - Asset managers' strong earnings will likely turn smaller fund firms into desirable acquisition targets for financial services firms as they try to cash in on the industry's profits, senior bankers told the Reuters Investment Banking Summit on Monday.

Boasting higher price to earnings multiples than many other companies, plus strong growth trends as Americans are becoming more responsible for financing their own retirements, asset management firms are not the ugly ducklings that corporate parents are trying to remove.

"There was a prediction that most financial services companies would pull back from the asset management industry," said Gregory Fleming, president of global markets and investment banking at Merrill Lynch & Co. Inc. MER.N. But "our view then and still today is that many businesses would remain in asset management," he said.

Indeed for financial services firms like State Street Corp. (STT.N: Quote, Profile, Research, Stock Buzz) and Mellon Financial Corp. MEL.N, their money management units are lucrative parts of the business; and senior executives at both companies have said, in general, that they would be interested in growing through appropriate acquisitions.

"We think there will continue to be consolidation in that business, and demand from larger institutions will still be there," Fleming said, adding that banks will likely still make bids for asset managers.

At the moment, foreign banks may be especially interested in taking a piece of the roughly $9.5 trillion U.S. mutual fund industry, industry analysts have said in the past.

Italy's UniCredit (CRDI.MI: Quote, Profile, Research, Stock Buzz) is one of the firms interested in possibly buying Boston-based Putnam Investments from insurance firm Marsh & McLennan Cos. Inc. (MMC.N: Quote, Profile, Research, Stock Buzz), one of its board members told Reuters in October.

But at the same time, large corporations may be mulling more deals like the asset swap between Baltimore-based asset manager Legg Mason Inc. (LM.N: Quote, Profile, Research, Stock Buzz) and Citigroup (C.N: Quote, Profile, Research, Stock Buzz), and Merrill Lynch's decision to take a large stake in money manager BlackRock Inc. (BLK.N: Quote, Profile, Research, Stock Buzz).

"I don't think asset management as part of big conglomerates makes a lot of sense," said Scott Bok, co-president of boutique investment bank Greenhill & Co. Inc. (GHL.N: Quote, Profile, Research, Stock Buzz).

"In some cases, creating a more pure play company may be worth more than to have it hidden in a conglomerate," he added.

Many asset management companies -- most famously Fidelity Investments, which is still owned largely by the Johnson family -- are still privately owned. Several bankers said these family members might start thinking about selling. But the bankers also cautioned that deals like ones Citigroup and Merrill Lynch created will take time.

"There aren't that many BlackRocks out there," said Greenhill's Bok.