By Mathieu Rosemain, Andres Gonzalez and Iain Withers
PARIS/LONDON (Reuters) – BNP Paribas’ talks to take over insurer AXA’s investment business will lead to more deals, bankers say, as European money managers try to fend off U.S. rivals and as clients demand low-cost technology-driven investments.
The French bank announced Thursday that it was in exclusive negotiations to buy AXA Investment Managers for more than 5 billion euros ($5.5 billion), creating one of Europe’s largest fund groups with about 1.5 trillion euros in assets.
The deal came after a weeks-long bidding war between BNP and rivals including the region’s largest asset manager Amundi and US players, three people with direct knowledge of the deal said.
Europe’s fund managers are under pressure to act in response to bigger U.S. rivals like BlackRock (NYSE:), Vanguard and the fund businesses of Wall Street banks such as JPMorgan and Goldman Sachs, many of which are looking to expand in Europe.
The big U.S. funds have an edge in an industry that was once centered on high-paid star managers but has shifted to become cost-conscious by investing in a standard range of stocks, bonds and other securities.
Compounding this challenge is that European funds have recently found it difficult to maintain returns in volatile markets, while high price inflation in the region has also driven up their costs.
“I suspect this will be the first of many deals,” said Joe Dickerson, an analyst at Jefferies. “This is likely to spur others to take action as it creates a major force in European asset management.”
The mantra for asset managers is “go big or go home,” one of the sources said, adding that most fund firms – especially mid-market companies that are under pressure – were “in principle for sale”.
BID RACE
The bidding for the company was hotly contested, the three people with knowledge of the deal told Reuters.
Rival asset managers, including Credit Agricole-owned Amundi, and U.S. buyers were trying to complete the deal, these people said.
Amundi declined to comment. BNP Paribas (OTC:) and AXA both declined to comment.
Jefferies’ Dickerson predicted other European banks would follow BNP in expanding fund management, looking for ways to boost fees.
The gradual reduction in rates also promises more potential for mainstream fund managers like AXA, if they can recover some of the trillions of dollars parked in money market funds, a form of investing that tracks central bank rates.
After a slow build-up, talks gathered pace in recent weeks, culminating in talks between BNP and AXA – led by BNP CEO Jean-Laurent Bonnafé and AXA CEO Thomas Buberl – that finalized the deal, one of the people said .
Bonnafe and Buberl also met several times to discuss terms, another source involved said, adding that AXA had been looking at options for its asset management division for several months.
Amundi was among a small shortlist of companies vying for the deal, the three sources said.
The threat of AXA IM being snapped up by BNP’s rival Amundi likely resulted in the high price paid, one of the people said. The sources spoke on condition of anonymity because the conversations were private.
The total estimated transaction value is expected to reach 5.4 billion euros, which is a multiple of 15 times earnings in 2023, Axa said.
“Although this values AXA IM at… a premium compared to peers such as Amundi and Schroeders (LON:) – Strategically the deal makes sense,” said Johann Scholtz, senior equity analyst at Morningstar.
The acquisition is BNP’s third-largest deal ever, and based on LSEG data would be the tenth-largest unveiled in Europe so far this year across all sectors, as M&A activity ramps up after a lackluster 2023 .
It is also one of the largest asset management deals in recent years. Goldman Sachs acquires the Dutch-based asset manager NN (NASDAQ:) Investment Partners for 1.7 billion euros in 2022, but there have been few major deals since then.
AXA was advised by JPMorgan and Zaoui & Co, while BNP had its own internal advisory team, two of the people said.
(1 euro = $1.0818)
