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2 Sectors That Could Soon See Increased M&A Activity

By Tim Luscombe

Mergers and acquisitions are an intriguing part of business that can tell us things about the economy other key economic indicators do not reveal. The details behind buying and selling a business indicate, to some degree, the strength of both buyers and sellers as well as the sector they are involved in. In light of that, recently released data shows that mergers and acquisitions (M&A) could soon be increasing in two unlikely sectors: asset management and building products and services.

It would seem that our current environment of economic uncertainty would dissuade M&A activity in these two sectors, but that’s not the case. In fact, the next one to three years could create one of the best environments we have seen in years for buying or selling a company in either sector.

Deals in Asset Management Rising

The total number of M&A transactions in 2016 was down slightly from the year before. Just 133 transactions took place in 2016, as opposed to 145 in 2015. But 2017 is showing an upward trend. According to Institutional Investor, data from a PricewaterhouseCoopers report shows 41 deals were announced during the first quarter of this year. The biggest deal among them was the acquisition of Fortress Investment Group by Softbank for £2.5 billion.

So what’s driving the activity? The changing investment landscape. By all indications, asset managers are looking for new ways to increase customer profits in the midst of an ageing population, a greater emphasis on passive investing, dwindling returns on standard investments, and slower organic growth. M&A transactions are a profitable avenue when good deals are made.

Record Levels for Building Products

While we all scratch our heads over the increased M&A activity in asset management, the building products sector is doing its own thing. A report from BDO accountancy firm indicates that M&A activity in building products and services hit new records in 2016. Not only that, the value of those transactions also increased significantly.

BDO says that despite Brexit fears, approximately 22% of the transactions in the building products and services space involved private equity investment. The sudden surge in private equity has made companies in the space an attractive target for acquisition.

What’s most unusual about this is the fact that building products and services are an intrinsic part of the construction industry, an industry that typically suffers during times of economic uncertainty. Knowing what we know about the likely future of the UK, an increase in M&A activity within this space defies what we normally expect. It tells us that the economy may be stronger than most of the analyses indicate.

M&A activity in asset management and building products and services will continue throughout 2017 and into 2018. The only question is how strong the activity will be. If current trends are accurate, both sectors could see strong M&A growth that would surprise even the most optimistic analysts. Let’s hope that is indeed the case.


Institutional Investor –
The Construction Index –

By Tim Luscombe.

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