Even after news of his firm's deal with Tri-Artisan started filtering through the financial markets in early January, John Sorte, Morgan Joseph's chief executive, was still getting calls from senior executives at retail brokerages and asset managers to "see if it makes sense to do something with us."
That "something" would have involved some sort of deal, with Morgan Joseph as a buyer or a seller.
The calls are emblematic of a recurring theme for a broad range of financial institutions: the desire not to rely on a single source of revenue.
Senior managers want to offer more products and services, and they want to broaden themselves geographically.
Also, higher costs related to regulatory changes are driving many firms into the arms of others.
That's why so many observers expect more FIG (financial institutions group) transactions.
Fred Cannon, chief equity strategist and co-director of research at Keefe, Bruyette & Woods Inc., said FIG deal volume likely will rise about 20% this year.
As of Feb. 8, 72 M&A deals, worth just over $3 billion, had been announced this year involving U.S. financial services firms, according to Dealogic.
Worldwide, 304 transactions, worth just over $23 billion, had been announced.
Last year there were 4,037 such deals, worth $434.6 billion, worldwide, including 822 in the U.S. The U.S. deals were worth $134.9 billion.
"What people are realizing is that it is very tough to be so narrowly focused," said Sorte, whose firm, a specialist in mergers, acquisitions, equity financings and restructurings, tied the knot with Tri-Artisan to gain a foothold in private equity.
In January, Moelis & Co. bought Asia Pacific Advisers of Hong Kong to get a toehold in Asian markets.
In late December, Raymond James Financial announced an agreement to acquire the middle-market brokerage Howe Barnes Hoefer & Arnett to expand its capital markets operations among community and regional banks. That deal is expected to close in March.
In November, Carlyle Group bought a stake in Sandler O'Neill.
Eric Heaton, head of FIG banking at Deutsche Bank Securities Inc., said the expected uptick in dealmaking would parallel one in the mid-1990s, when banks were coming off of a recession that left them with bad real estate debt on their balance sheets.
Also, changes in interstate banking regulations spurred M&A at that time.
This time around, Heaton said, bank managers have cash and realize "there are very few organic growth opportunities."
Olivier Sarkozy, a partner at Carlyle and former co-head of FIG banking at UBS, also expects a pickup in dealmaking as firms grow more comfortable valuing target companies.
"Consolidation comes to a grinding halt in times of stress," Sarkozy said. "When you come out of times of crisis, you add fuel to the consolidation fire. This is all part of the normal evolution of a commoditized industry."
Bank analysts at Keefe Bruyette predicted in a report published last summer that buyers would pay 1.5 times book value — a price similar to what buyers paid for banks in the 1990s.
However, in a report published in February, the analysts said that buyers likely will pay 2.2 times book value — market conditions resembling those of the early 2000s.
Dealmakers, meanwhile, say they expect transactions involving asset management and property and casualty firms; one of this year's larger deals, Berkshire Hathaway Inc. is acquiring the remaining stake it does not own in Wesco Financial Corp.
Some observers say banking firms may want to purchase nonbank businesses like Discover Financial Services, CIT Group Inc. and SLM Corp., better known as Sallie Mae. And various market watchers said that — away from the world of investment banking boutiques — large regional banking firms and community banks will drive most of this year's M&A.
Fitch Inc. analysts expect foreign banks to do more buying, and some of the targets could be U.S. firms.
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