M&A in the asset management industry are about as surprising as when night follows day. Yet the tie-up between Ninety One and Sanlam Investment Management (SIM) is anything but another bland merger. It’s a turbocharged booster shot for the already bustling trend of consolidation in the industry.
Ninety One, a behemoth managing more than R3-trillion in assets, has decided to scoop up SIM, along with its R400bn in assets under management. In return, Sanlam gets a cosy stake in Ninety One, valued at a cool R5bn.
The backdrop to this corporate tango is none other than Regulation 28, which now allows pension funds to allocate a whopping 45% of their assets offshore. This regulatory shake-up has ushered in a new era in which local asset managers must step up their game or risk being left in the dust. The Ninety One and SIM tip is a prime example of how regulatory changes are reshaping the industry landscape, pushing firms to consolidate and pool resources to stay competitive.
But let’s not pretend this is just about numbers and assets. There is strategic brilliance at play here. By merging, Ninety One and SIM aren’t just becoming larger — they’re becoming smarter. Access to Sanlam’s extensive distribution network? Check. Expanded market reach through Sanlam’s established channels? Double check. Preferred access to new savings pools outside the normal reach of the Ninety One brand? Absolutely! What’s more, Sanlam’s role as an anchor investor in Ninety One’s international private credit strategies is the cherry on top.
That said, this isn’t all sunshine and rainbows. Integration challenges could arise, with differences in corporate culture, systems and processes potentially knocking carefully laid out plans off course. While the deal promises to pay out immediately for Ninety One, and from year three for Sanlam, the initial phase might see short-term disruptions.
Critics might argue that reduced competition could lead to higher fees and choices for consumers. They may also point out that this consolidation trend can sometimes stifle innovation and make it harder for smaller firms to compete. There is also the possibility of job losses as companies pursue savings overlaps, synergies in corporate parlance. The Competition Commission will undoubtedly scrutinise this with a fine-tooth comb, assessing whether it fosters healthy competition or edges towards creating an insurmountable behemoth.
But the reality is the SA asset management sector is bursting at the seams with more than 500 firms — Rand Merchant Bank’s calculations — making is super ripe for M&A deals. And in the grand scheme of things this tie-up aligns well with broader global industry trends and the regulatory landscape. The commission should look at this union kindly, recognising it as a necessary step for asset managers to thrive in an increasingly globalised and competitive market.
The commission’s handling of the Vodacom-Masiv R13bn tie-up does not inspire confidence. It blocked the deal, ostensibly on principles of maintaining competition, dashing hopes of a bigger and deeper pocketed telecom industry player to excavate the streets of Gugulethu or Umlazi to lay fibreoptic cables.
Yes, Ninety One is a giant in the SA asset management industry, but it is a minnow on the global stage, dwarfed by global titans such as BlackRock, Vanguard and Fidelity — all of which attract investments from SA clients, often without substantial local operations, and siphon off capital without contributing as much to the economy.
Ninety One CEO Hendrik du Toit, who exudes confidence in navigating regulatory hurdles, casts the deal as a substantial vote of confidence in SA, saying it should be seen as a strategic mandate rather than merely an acquisition. He makes a compelling case for supporting local companies, such as Ninety One, which aim to stand their ground and compete robustly on the global stage.
The proposed NinetyOne-SIM merger is a bold move that turbocharges consolidation, reflects the profound effect of regulatory charges and promises a stronger, more competitive future for the industry. Let’s hope the regulators see it the same way and give this deal the green light it deserves.
• Motsoeneng is Business Day deputy editor.
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