This historical context is particularly relevant in today’s market, where we’re witnessing a surge in mergers and acquisitions (M&A) among listed funds and asset managers. The journey of these major banks, rooted in early 19th-century foundations and bolstered by key mergers and deregulation in the 1980s, reflects the dynamic and evolving nature of Australia’s financial sector.

Amidst market volatility, geopolitical upheaval, and relentless digital transformation, the fund management industry is rapidly evolving. As the sector grapples with the pressures of low returns, shrinking margins, and the urgent need for digital transformation accelerated by the COVID-19 pandemic, 2023 continues to witness a surge in M&A activities as scale and consolidation are seen as answers.

These moves are not mere reactions to market conditions but strategic endeavours to create more robust, efficient, and competitive entities in a highly challenging and evolving financial sector.

The sector witnessed a significant transformation at the beginning of 2023, marked by two pivotal deals. In February, the merger of QSuper and Sunsuper into the Australian Retirement Trust heralded the creation of the country’s second-largest super fund. This merger, boasting over 2 million members and managing more than $230 billion in funds (at the time), underscored the growing trend of consolidation in the sector.

Simultaneously, the Perpetual Limited (ASX: PPT) acquisition of Pendal Group Ltd (ASX: PDL) further solidified this trend. Culminating in Perpetual managing around $200 billion in funds (at the time of transaction), the journey to this merger was marked by a ten-month-long series of negotiations, highlighting the complexities and strategic importance of such consolidations.

Globally, deals such as this one have fast become the norm, despite increasing questions from analysts about so-called dis-synergies, the ability to retain acquired funds and questions about retaining talent.

In March, AllianceBernstein agreed to pay US$750 million for alternative investment manager CarVal. And in April, Franklin Templeton closed its acquisition of Lexington Partners.

As we witness the emergence of new giants reshaping the industry, attention shifts to another key player, Regal Partners, whose bold strategic initiatives are carving out a distinctive path in this rapidly evolving sector.

Regal Partners (ASX: RPL) has been incredibly active in the takeover space over the past year.

Just over 12 months ago the fund manager made an ambitious $2.1 billion bid as part of a consortium with BPEA Private Equity Fund VIII for Perpetual (ASX: PPT). It was deemed by Perpetual to not be in the best interest of shareholders. Perpetual at the time was busy with its own acquisition of Pendal Group.

Within the last fortnight Regal has again picked up its acquisition activity.

The company announced that it has entered into an agreement to acquire 50% of the issued ordinary shares of Taurus SM Holdings Pty Limited, a specialist provider of financing solutions to global mid-tier and junior mining companies. The move sent the share price up 8%. The purchase is made up of a $28 million upfront payment to be funded by existing cash and investments as well as a deferred contingent consideration. The deal is expected to be completed within the month.

If Regal wasn’t busy enough, within the same week the company announced its bid for PM Capital.

PM manages a diverse range of Australian retail investors and financial advisory groups with in excess of $2.7bn of funds under management. The acquisition will cost Regal approximately $150 million comprising an upfront cash payment of $20 million followed by deferred scrip consideration subject to satisfying certain conditions.

CEO of Regal Partners, Brendan O’Connor, commented:

Following the acquisitions Regal’s group funds under management is expected to increase to $10.8 billion.

This follows on from its withdrawal last month for its acquisition of Pacific Current Group Ltd (ASX: PAC).

We touched on the change of heart here. Following the $11 bid from GQG Partners (ASX: GQG) which initially failed to find support from Pacific’s largest shareholder River Capital. River has now decided to propose its own acquisition of Pacific with a lower bid of $10.50 per share in cash.

River’s proposal will be predominantly funded by the sale of most of Pacific’s interests in Pacific’s affiliates to GQG. GQG confirmed that it was unaware of the submission of the River Capital Proposal, but in any event was not prepared to provide funding on the terms proposed. River is clearly making it difficult for GQG and with Regal’s hands full with other acquisitions it could mean further activity is on the horizon. An updated bid from GQG with more attractive terms or an offer they simply can’t refuse to sway River could be on the cards. Time will tell.

It’s been a rough ride for Magellan Financial Group (ASX: MFG) shareholders over the last few years seeing heavy declines.

Earlier in the month the fund revealed it had experienced net outflows of $800 million to the end of October as the funds assets dropped to $34.3 billion, down from the dizzying heights of over $100 billion in the latter part of 2021.

With such a fall from grace brings speculation that Magellan itself could be a takeover target.

In fact, recently Magellan chairman Andrew Formica has said while he was open to acquisitions Magellan itself “may well be a target”.

So what is in play?

Rumours of Regal potentially lobbing a takeover bid following its transactions back in August. Magellan holds a stake in Barrenjoey and it has been suggested it could look at a reverse takeover.

Activist investor Nick Bolton has been applying pressure having loaded up on millions of options worth near zero to allow he and other investors to buy units at a 7.5 per cent discount.  Unfortunately for Bolton, his push for a meeting of unitholders hit a bump in the road in the last fortnight. Magellan mounted a successful legal challenge and pushing back on his call for a unitholder meeting.

Another activist investor Sandon Capital has been applying pressure on the company to return cash to shareholders.

Magellan’s recent setbacks and uncertainties surrounding its future make it a focal point of market attention and strategic manoeuvring.

In the high-stakes realm of active funds management, where pressure and competition are relentless, mergers and acquisitions are more than just corporate manoeuvres. They symbolise a strategic pursuit of synergy, where the amalgamation of companies aims to streamline operations and reduce overheads in areas like marketing, human resources, and compliance.

The blueprint for a successful merger in this sector rests on three pillars: ensuring top investors retain their decision-making freedom, achieving operational efficiency to turn additional funds into profit, and, perhaps most challenging, fostering growth in the newly merged entity.

As we observe the unfolding narrative of mergers and acquisitions within the ASX funds management sector, it becomes evident that the industry is at a pivotal junction. Here, paths diverge, reflecting varied strategies — from aggressive expansion to nuanced structural changes, all under the watchful eyes of activist investors. This evolving landscape promises not only new challenges but also unprecedented opportunities for growth and innovation in the world of asset management.

Disclosure: Pacific Current Group Ltd (ASX: PAC) is held in TAMIM Portfolios as at date of article publication. Holdings can change substantially at any given time.