Luxembourg last week was buzzing with speculation and market talk. A major deal was said to be in the making that could change the international leadership tables among Alternative Investment Fund Managers, AIFMs. “Is your firm going to be bought?”
The history of finance has regularly seen rumours launched by sneaky - or smart, depending on your perspective - investment bankers keen to achieve their objectives, such as securing their split of profits from a multibillion euro merger deal. Although this type of manipulation has become more difficult in the Mifid era - market abuse now is considered a crime - there is no guarantee it no longer happens. To make it work: time it well and stay in control of the rumour.
On such occasions, some of those working in a deal team would inform a financial journalist - typically over a late-night drink in a pub - that party A is courting party B. This to inspire a publication that would drive up the latter’s share price, and that would push down the valuation of the firm that wants to splash out and buy to finance the deal. A rumour could threaten to close this window of opportunity and could force a swift decision to go ahead.
In the same manner, a negative rumour could push down the price of party B, making it cheaper to buy. Professionals in the merger and acquisition business will recognise that “good” market talk never comes out of nowhere, but almost always serves the interest of a very specific party. The question is: who?
“Apex is going to buy Alter Domus,” “Apex is going to buy Hauck Aufhauser,” “Waystone and Universal are going to merge,” it was rumoured over the coffees at a Luxembourg private assets conference this week. The five companies mentioned in the talk are all major AIFMs active in Luxembourg. “Good” market talk indeed, but in whose interest?
‘Intentionally spread around’
So far, none of this Luxembourg market talk/rumours/gossip/speculation could be proven as true. When asked, spokespeople for the companies highlighted their company policy of not commenting on rumours. Speaking on background, one made clear there are no concrete developments. At Apex, the rumours were dismissed as “speculation”.
Frankfurt-based investment bank Hauck Aufhauser Lampe, a top AIFM in Luxembourg also known as HAL, went a step further and said the rumours were ”intentionally spread around” to negatively affect the firm’s business.
“The rumours are completely false,” a HAL spokesperson responded. “There are no ongoing talks about a takeover of HAL or any of the bank’s entities, nor are there any plans of this kind. Instead, it can be assumed that these rumours are intentionally spread in the market in order to negatively influence HAL’s business development.”
Leaks and rumours can bring a deal team very close to a point-of-no-return, either undermining - share price or reputation - the party that is to be acquired or forcing the buyer to push ahead and commit billions to finance a takeover at a moment when the benefits and synergies may not be completely clear yet.
Market consolidation rationale
So what is really going? This week’s rumours lack consistency and they are firmly dismissed. At best it sounds like highly tentative speculation on what 2023 might bring in terms of market consolidation.
The logic and rationale behind further market consolidation in asset services and alternative investments has been obvious for many years. Financial regulation is becoming increasingly tight. The IT infrastructure needs to be upgraded. Talent is difficult to attract and retain. For AIFMs, pooling resources and generating synergies through consolidation - either merging your business or placing it under the umbrella of a bigger one - is a natural way to progress into the future.
The Covid-19 pandemic did slow down the consolidation process. Fingers crossed - this now largely is a thing of the past. What’s more, conditions in financial markets have become tougher amid inflation and rising interest rates. The next quarter also will bring a major adjustment to valuations of private assets, which may be hard to digest for AIFM clients.
If any deal were to be announced in the near future, it would likely be one that is due to be completed by the end of 2023. This would leave plenty of time for due diligence and for approvals by the financial regulators such as the CSSF. And plenty of time to prepare for the integration of the businesses.
So is there any truth in these rumours floating around? Clearly none, but the rationale for market consolidation stands firm, and that is exactly what the new year may bring. Where there’s smoke, there’s fire.
In Flux is a regular column on Investment Officer Luxembourg shedding light on the Luxembourg financial ecosystem. Financial journalist Raymond Frenken is Editorial Manager of InvestmentOfficer.lu. He has followed international financial markets and EU financial regulation for more than two decades.