Another wave of fresh mergers and acquisitions (M&A) is expected in the industry, but asset managers’ short-term creditworthiness will not improve, a report has suggested.
Although M&A activity is anticipated to continue at a robust pace over the next several years, credit benefits for the average asset manager will be modest in the near term due to the use of leverage and liquidity to fund deals, according to the study by US financial services firm Moody’s.
“Most targets are relative to the acquirer, and larger deals will take time to realise their synergies,” said Moody’s vice-president and author of the study Rokhaya Cisse.
“Once companies do integrate successfully, the attainment of scale does not, in our view, solve organic asset growth challenges and fee pressure.”
According to the research, published last week, asset managers are getting squeezed from all sides. Ongoing industry pressure is the driving force behind consolidations.
“Developed markets’ growth prospects are weak – we forecast around a 2% increase in GDP for developed economies in 2019,” the report says.
“Additionally, the greying of populations in these markets will further constrain growth because the demographic shift will reduce the economies’ labour supply and savings rates.”
M&A is used defensively, and in some cases offensively, to relieve industry pressures and address issues that have stunted growth in recent years for all but the biggest players in the game, Moody’s said.
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