For Sale: What Asset Managers Want in Indie ETF Shops

If you can’t beat ’em, join ’em.  

That might be the ETF market’s new motto, thanks to a surge of M&A deals including Goldman Sachs buying options ETF provider NEOS Investments and T. Rowe Price buying fixed income provider F/m Investments. Acquisition of an indie shop lets many large asset managers avoid FOMO by adding specialization and differentiating their product lineups. The fastest way to get into the game or to expand their ETF footprint is by buying another firm, said Brittany Christensen, senior VP of business development at Tidal Financial Group. But what makes an ideal acquisition candidate? 

“It’s partially about your brand recognition, as well as being known for a specific type of ETF strategy,” Christensen said. That strategy can complement what the large asset manager offers or help them expand in a space where they’ve failed to be competitive. 

The Upshot for Investors  

The motivation for a firm’s purchase of an ETF shop is often the underlying infrastructure, because it can take a while to bring an ETF to market, Christensen said. It’s about finding smaller shops with existing distribution or that are well known by ETF allocators. A lineup of ETFs or a “repeatable idea” that can be used on different indexes or on different underlying names or portfolios to build out a suite of products is also attractive, Christensen added.

But firms should also consider what the change means for investors who use the ETFs at acquired shops: 

• “Too many acquiring firms assume that investors in the ETFs that are being acquired will be happy to be a part of a large firm,” said Stacy Havener, founder and CEO at Havener Capital. “The devil is in the details. And the onus is on the acquirer to craft a narrative that meets investors where they are, addressing their concerns, and their fears, and their hopes about the future.” 
• Acquisitions of sponsors of relatively unique ETFs “are likely to be a positive for investors, since the purchasers are usually larger, better funded companies, so there will likely be more resources available to the management of the ETFs,” said Kathleen Macpeak, an attorney at Morgan, Lewis & Bockius. “In such a case, there are typically no big changes to the products.” 

Most Eligible. Bloomberg ETF analyst Eric Balchunas recently ranked what he called the “most eligible indie ETF issuers” by organic growth rates, size, revenue, asset stickiness and product diversification. Plenty of household names including Roundhill Investments, Tema, Rex Shares and VanEck made the list.