Alpha M&A Insights: Increase in Tactical Bolt-on Acquisitions


The first half of 2017 represented the busiest period in global investment management M&A since 2008 with the number of deals up 27% from the same period in 2016. Despite the recent mega-mergers of Standard Life Aberdeen, Amundi Pioneer and Janus Henderson, the average size of deals has fallen, both in terms of disclosed deal value and in total AUM changing hands. So far this year, 62% of deals have involved sellers with AUM less than $3 billion, resulting in the median AUM transacted dropping to just $1.5 billion, the lowest figure since the end of 2014. AUM transacted since 2015 has been decreasing year on year, with 2016 showing a 7% decrease at $2.6 trillion. This trend could be set to continue into 2017 with just $1.2 trillion AUM transacted in the first half of this year1.

The large volume of small transactions is largely due to an uptake in targeted bolt-on acquisitions, which formed 43% of 2016’s deal making activity, representing 64 out of 149 deals1.The objective of these deals is for managers to fill gaps in their product offering or to extend a capability or service through a targeted acquisition such as a ‘desk lift-out’. Examples of such deals include Canaccord Genuity Wealth Management’s acquisition of Hargreave Hale, extending their capability range to stock broking, and Prudential’s acquisition of Zenith Life Assurance Company, increasing their presence in Nigeria2.

In 2016, 5.1x more cash flowed into passively managed rather than stock picking funds. While this proportion has decreased to 1.4x in the first half of 20173, it still poses a significant concern to active managers. Bolt-on acquisitions are becoming increasingly popular as active investment managers look to diversify their product range and achieve cost synergies to compete with their passive rivals. A recent example of this is Invesco’s move to purchase Guggenheim, an ETF business, in late September this year, in addition to its recent acquisition of Source, a London based ETF provider4.

Tactical bolt-on deals can offer a lower risk, more targeted approach to M&A, making them well suited to a period of deep market uncertainty and high volatility. This sentiment is reflected in statements by Brian Conroy, President of Fidelity, explaining that the firm’s long-term M&A strategy would be focused on “cutting costs or broadening product offering” rather than “snapping up big name rivals”5. Mark Gregory, CFO of L&G, outlined that the firm would not be participating in the very large M&A transactions within the market, instead preferring to “do small bolt-ons from time to time”6 . Firms can use such acquisitions to diversify their product, client and geography making them more resilient to economic volatility in the future.

Key Drivers

Industry Trends

  • Market volatility
  • Search for greater value certainty
  • Shift to passive

Bolt-on Benefits

  • Risk reduction & improved speed of integration
  • Quantifiable value-adding solutions
  • Diversification of product range

Capitalising on the Opportunity

The key to sourcing suitable bolt-on acquisitions effectively is often obtaining accurate performance data on the acquisition target to allow for accurate valuation. Firms will need to undertake rigorous analysis, balancing apparent client appetite and expected future demand against the future cost of acquisition and integration.

Opportunity also exists for firms to strategically divest and offload product or capability teams that may be worth significantly more in the market than at the firm. Firms looking to do so should consider their best routes to market by identifying larger players with offering gaps and positioning their services in an attractive package, ripe for acquisition.

Key Observations

Risk Reduction & Improved Speed of Integration

The recent period of increased market volatility, driven in part by global political shifts, may have given potential asset and wealth management buyers and sellers pause for thought before embarking on costly transformative M&A activity. The general increase in smaller scale acquisitions demonstrates the difficulty of justifying larger moves to shareholders. It is also evidence of a renewed focus on risk reduction, particularly due to the sector’s susceptibility to investor sentiment and the subsequent flight of AUM in the wake of turbulent market conditions and political uncertainty. Tactical bolt-on acquisitions can be significantly quicker and less complex to integrate than their bigger siblings7. This ability to deliver new and relatively inexpensive capabilities, services, and products rapidly to market with reduced risk and lower integration costs is a major benefit to this model.

Quantifiable Value-Adding Solutions

Valuations of UK asset managers remain at historically low levels with large-scale transformational acquisitions having delivered mixed results across the industry. Additionally, recent studies of UK and US managers, (with AUM ranging from $2bn to $500bn) have shown little correlation between the scale of AUM and Return on Equity (ROE), which calls into question whether large transformational deals bring true added value8.

The economic, regulatory, and technical challenges associated with transformational deals can raise significant hurdles with their integration. Furthermore, wholesale organisational acquisitions can require substantial effort in talent retention and cultural fit in order to avoid key personnel leaving the business and overall AUM leakage. For example, Henderson and Janus faced post-integration complexities such as the departure of senior members of the global equities and high yield bond teams. Many firms are turning away from large-scale transformational M&A in favour of tactical bolt-on acquisitions. Mark Dampier, Research Director at Hargreaves Lansdown expressed “Quite often, M&A doesn’t always mean you come out the better for it” and Keith Baird, Director of Equity Research Financials at Cantor Fitzgerald explained that with large deals “there is always a risk of attrition, a loss of revenue and a loss of staff”.

Shift to Passive

In a period of often stagnant investment returns, many investors are becoming disillusioned with seemingly expensive actively managed funds. They are instead preferring to put new money into low cost passive funds, with 85% of new funds flowing into passively managed index funds or ETFs in 2016. In a survey of global asset managers with UK operations, 77% stated that the threat from passives would lead to a reduction in fees and 69% explained that they would be forced to create their own passive products8. As a result, firms are diversifying their product ranges by acquiring mid-sized managers with special capabilities, such as Invesco’s purchase of Source and are creating economies of scale by combining back office functions, investment office, or research capabilities through tactical bolt-on acquisitions.

How Can Alpha Help?

  • Identifying Opportunity
    • Alpha is able to identify suitable bolt-on opportunities to match market trends or capability demands. Our sector-specific market data and wide client exposure enable us to provide advice tailored to the industry and to firms’ individual needs.
  • Pre-M&A and Due Diligence
    • Alpha can assist in detailed due diligence and analysis to ensure that an acquisition opportunity is a high-value fit for the client. Our pre-M&A capabilities include deal-making support, impact analysis, and strategic options analysis, in addition to our specialised due diligence covering operations, technology, and compliance.
  • M&A Planning and Integration
    • Alpha’s wealth of industry experience in numerous complex integrations, as well as our proprietary methodologies and accelerators, enables us to help integrate bolt-on acquisitions quickly and successfully. We regularly provide services in target operating model design and transition focused programme / project management for front, middle, and back office.


Data Sources: 1. Sandler O’Neill and Partners  2. Mergermarket  3. Morningstar  4. The Financial Times  5. Financial News  6. Reuters  7. Portfolio Advisor  8. Deloitte

Managers are using Tactical Bolt-on deals to develop product ranges and cut entry costs as they offer a lower risk, more targeted approach to M&A.”


Jon Benson, Alpha FMC M&A Practice Lead