Bankers predict that BNP Paribas' negotiations to acquire AXA's investment division will spark additional transactions, as European asset managers strive to counter American competitors and meet consumer demand for affordable, technology-driven investment options.

On Thursday, the French bank disclosed it was in exclusive talks to purchase AXA Investment Managers for over 5 billion euros ($5.5 billion), forming one of Europe's largest fund groups with approximately 1.5 trillion euros in assets under management. This acquisition follows a prolonged bidding war involving BNP and its competitors, including the region's leading asset manager Amundi and several U.S. firms, according to three individuals with direct knowledge of the transaction.

European fund managers are facing the need to expand in response to larger U.S. competitors such as BlackRock, Vanguard, and the fund arms of major Wall Street banks like JPMorgan and Goldman Sachs, many of which are looking to grow in Europe. The U.S. giants have an advantage in a sector that has transitioned from being dominated by high-profile, high-salary managers to one that emphasizes cost-effectiveness through broad investments in standard stock, bond, and other security portfolios.

Adding to this challenge, European funds have struggled to sustain returns in volatile markets, and regional inflation has also increased their costs. Joe Dickerson, an analyst at Jefferies, commented, "I suspect this will be the first of many deals. This is likely to prompt other firms to act because it creates a significant player in European asset management." One source emphasized that the prevailing strategy for asset managers is "go big or go home," suggesting that most fund companies, especially those under pressure, are essentially on the market.

The bidding for AXA Investment Managers was fiercely competitive, according to the three individuals familiar with the deal. Rival asset managers, including Credit Agricole-owned Amundi and U.S. buyers, were actively vying for the acquisition. Amundi, BNP Paribas, and AXA all declined to comment. Jefferies' Dickerson anticipates that other European banks will follow BNP's lead in expanding into fund management, seeking to generate additional fees.

The ongoing reductions in interest rates also offer potential growth opportunities for mainstream fund managers like AXA, provided they can attract some of the trillions of dollars currently held in money market funds, which track central bank rates. Negotiations intensified over the past few weeks, culminating in discussions between BNP and AXA, led by BNP CEO Jean-Laurent Bonnafé and AXA CEO Thomas Buberl, which sealed the deal, according to one of the individuals involved. Bonnafé and Buberl had several discussions to finalize the terms, another source added, noting that AXA had been exploring options for its asset management division for several months.

Amundi was among a select group of companies shortlisted for the acquisition, according to the three sources. The high price paid for AXA IM likely reflects the competitive threat posed by BNP's rival Amundi, one of the individuals suggested. The sources requested anonymity due to the confidential nature of the talks. AXA announced that the estimated transaction value is expected to be 5.4 billion euros, representing a multiple of 15 times 2023 earnings.

Johann Scholtz, senior equity analyst at Morningstar, commented, "While this values AXA IM at a premium compared to peers like Amundi and Schroders, strategically, the deal makes sense." The acquisition would rank as BNP's third-largest deal ever and the tenth-largest in Europe this year across all sectors, according to LSEG data, as M&A activity picks up following a sluggish 2023. It is also one of the largest deals in asset management in recent years, following Goldman Sachs' acquisition of Netherlands-based asset manager NN Investment Partners for 1.7 billion euros in 2022, which was a rare large deal in the sector.

AXA was advised by JPMorgan and Zaoui & Co, while BNP utilized its internal advisory team, according to two of the individuals involved.