A wave of merger and acquisition activity shows no signs of slowing down in the fund administration space, with Apex Fund Services just last week announcing its acquisition of Deutsche Bank’s alternative fund services business. That’s after SS&C Technologies had its own latest addition earlier in the month.
Such deals are creating a bifurcation as industry giants keep growing and smaller providers look for niches in order to survive, industry watchers say.
In the next five years, there will only be a handful of banks offering fund administration, along with large players above the $300 billion mark and smaller players below $50 billion, says Peter Hughes, founder and CEO of Apex.
The Apex transaction, expected to close in the second quarter of 2018, will open up 18 additional investment jurisdictions for the firm and add $170 billion in assets under administration, which would bring it to over $300 billion in assets under administration and make it the eighth largest admin firm in the world, according to a press release. The terms of the transaction were not disclosed.
“The important thing is to integrate these businesses that we are buying well, that quality isn’t compromised and that [clients] see quality is getting better as we get bigger,” Hughes says.
The merger will enable Apex to offer bank custody and depository services and push out sophisticated middle office products, Hughes says. The Deutsche lift out also helps Apex pursue its goal to become a top five global fund admin in assets serviced. “We need to double our size again to get in the top five, which is where we are targeting to be,” Hughes says, noting that Apex is looking at a range of options to grow via acquisitions, from single country firms to the potential of more bank lifts outs. Its other recent acquisitions include Equinoxe Alternative Investment Services and Pinnacle Fund Administration, as reported.
SS&C Technologies has also been driving merger activity, having acquired $8 billion Canadian administrator CommonWealth Fund Services earlier this month. “The acquisition strengthens our presence in the Canadian fund services market and furthers our strategy to expand our international business,” CEO Bill Stone said in a press release. The move follows a raft of acquisitions by SS&C, including acquiring Conifer Financial Services, Wells Fargo Global Fund Services and Citigroup’s Alternative Investor Services business.
“I think the acquisition or corporate activity in the alternative fund admin space is going to continue. As you saw with [the Apex and SS&C] deals, the activity is global with global firms and even local firms,” says Bill Salus, CEO of Paddock Consultancy, which focuses on the fund administration market. “As administrators begin to reevaluate their model and their own internal economics… fund admins are going to evaluate their own models and look at all options for growth, including taking on new capital or looking to acquire or even divest or sell to larger alternatives.”
Acquisitions aren’t just about purchasing revenue streams but also can add capabilities administrators did not have before, says Scott Price, head of business development and client management for North America at Maitland. Growth for administrators is “on fire” in the close-end fund world, including private equity, as outsourcing continues to grow in popularity, and as the hedge fund side remains focused on technology growth.
“It’s still very much a scale business. Businesses… need to have products that go through multiple jurisdictions. An admin can’t just be doing U.S. products,” he says.
Maitland itself recently acquired R&H Fund Services, giving it a foothold in Guernsey, and remains “on the hunt to grow” organically or through acquisitions, he adds. Read the full article here.