A backlog in merger and acquisition deals for the asset management industry will see a rush of activity in the next 12 to 18 months, predicts Jefferies’ Financial Institutions Group, the international securities and investment banking firm.

Global transaction activity slumped in the first six months of 2010 compared with a strong year in 2009, the firm said. At $437 billion in the first six months, total assets under management transacted was in line with the levels of 2001, when just under $900 billion of AuM were transacted over a 12-month period and well below the $2 trillion-plus levels in 2006-2009, the report said.

In late 2008 and 2009, the wealth and asset management industry in Europe, the US and Asia witnessed a raft of merger and acquisition deals, as debt-burdened banking groups such as ING, Commerzbank, Citi and Fortis span off non-core assets, while other firms such as Bank of America, Julius Baer, OCBC and Barclays bought businesses at cheap valuations (notably as in the case of Barclays’ purchase of much of Lehman Brothers). In asset management, the industry saw M&A deals at BlackRock, Henderson and Credit Agricole, for example. However, the pace of M&A has slackened in the asset management sector, the report said.

Turning Tides, a review of global asset management M&A during the first half of 2010 published by Jefferies, notes that, as the asset management industry adapts to post-recession conditions, the transaction environment will seek a "new normal" in the months ahead.

“Looking forward to the second half of 2010 and into next year, we expect potential sellers, particularly independents, to be increasingly willing to engage in serious transaction discussions with buyers,” said Aaron Dorr, a New York-based managing director within Jefferies’ Financial Institutions Group.  “Earnings should improve, leading to stronger valuations and greater readiness by sellers to accept offers, but uncertainty regarding the global economic recovery will linger, driving the need for highly structured transactions,” Dorr said.

Among the themes highlighted in the report, it predicted that Asian and emerging market buyers will join US- and UK-based pure-play asset managers as the predominant buyers of asset management businesses.

“As economic growth in their home markets have strengthened their resolve and filled their war chests, buyers from Asia and emerging market countries will seek to expand both their product lines beyond their local product expertise and distribution presence beyond their home market,” the report said.