Looking ahead to 2008, the Freeman & Co. report projects that strategic deal volume will remain strong and that the key drivers in these industry sectors will include:
- A drive by alternative asset managers to consolidate, secure strategic minority investors and consider public listings to increase size and scale globally
- Sovereign wealth funds will further extend their reach as major investors in the financial services industry
- Private equity and hedge funds will increase their investments in financial services as the credit crunch causes disruption presenting investment opportunities
- Broker dealers will readjust their risk profile and review the scale of their global platforms
- Broker dealers will further integrate their research, electronic trading and prime broker services as hedge fund and alternative asset manager customers demand a greater suite of offerings
- Electronic trading and exchange consolidation will continue as global leaders seek to extend market positions
- In the insurance sector, rapid growth will continue in capital markets activity involving insurance linked securities, mortality and longevity hedging, CAT and mortality bonds, and sidecars
- Life settlements and premium financings will further grow as regulatory pressures subside
- Cross border middle market M&A activity will remain strong as strategic considerations continue to drive transactions
"Credit crunches are always painful, expose unexpected pitfalls, and are rarely short lived," said James L. Freeman, the firm's founder & Chief Executive Officer. "As 2007's subprime upheaval migrates into the corporate credit markets in 2008, we believe major opportunities will arise for established, well financed firms to consolidate their leadership position. Darwinian economics as against the rising tide environment we have experienced for the last five years should bring major changes in the strategy for the financial services industry."
Eric Weber, Managing Director & Chief Operating Officer, added, "2007 represented two distinct halves: a growth phase followed by a stressed phase. In 2008, we expect to see activity driven initially by the market stresses, including divestitures and continued minority investments followed by more strategic acquisitions and cross border deals later in the year."
2007 HIGHLIGHTS
Asset Management
- M&A volume measured by AUM reached $1.4 trillion, down 38% from $2.2 trillion in 2006, and up 21% from $1.1 trillion in 2005
- 28 deals included AUM of over $10 billion, up 22% from 23 deals in 2006, and up 115% from 13 deals in 2005
- Deals involving alternative managers reached 69, up 23% from 56 deals in 2006, and up 82% from 38 deals in 2005
- Geographically, the US, Asia and Europe all witnessed increased activity over 2007
Securities Firms
- Dollar value of M&A deals reached $135 billion, up 147% from $54 billion in 2006, and up 396% from $27 billion in 2005
- The surge was concentrated in investment banks (93 deals, up 90%), electronic trading & exchanges (101 deals, up 77%) and diversified securities firms (43 deals, up 187%)
- Geographically, all regions saw record growth: Asia (133 deals), Europe (111 deals) and North America (117 deals)
Private Equity
- Private equity firms invested $69 billion in 122 financial services firms in 2007, compared to 151 transactions valued at $38 billion in 2006. Volume in 2005 was 140 transactions worth $50 billion
- The leading financial sectors for investment were:
- Financial technology 38 deals $ 33.0 billion
- Insurance 32 deals $ 19.0 billion
- Asset management 17 deals $ 8.8 billion
- Banks & brokers 20 deals $ 6.3 billion
- Specialty finance 15 deals $ 1.5 billion
