The bigger the better?

It is, by anyone's calculation, a big deal. £9.9 billion, in fact. Nuveen's takeover of Schroders will create a $2.5 trillion behemoth, moving it up the league table of global asset managers by AUM, at the cost of a FTSE100 company with over 200 years' of history. For Schroders' shareholders, who have seen the company's value drop by around a third from its September 2021 high, the 29% premium Nuveen is paying will sweeten the pill, even if the price is a touch on the low side in the eyes of some analysts.

There is a lot of straightforward logic to this deal. Prior to the takeover, 94% of Nuveen's assets were in the USA, while EMEA is home to 64% of Schroders' holdings; the enlarged portfolio will still be skewed towards America, but less concentrated than before. Senior management will hope that increased scale brings a better spread of risk and the opening up of new possibilities.

The $2.5 trillion AUM covers all kinds of investments, but while both firms' real estate holdings are relatively small parts of their wider portfolios, they are still significant players in the international property market. Combined, they oversee $172 billion (~£125 billion) of real estate, with interests in a huge range of subsectors and markets. There are surely synergies to be found, efficiencies to be made and opportunities to be seized.

The deal will prompt some questions among real estate investors, developers and asset managers around whether they too need to go in search of similar mergers and acquisitions to achieve some additional scale. In a market where performance continues to furcate between sectors, geographies and even individual buildings, some will eye advantages from relatively indiscriminate size and others will see asset picking as the route to success.

Most obvious contenders for M&A this year are the sector specialists, especially those seeking to build national platforms such LondonMetric, which has been notably active with corporate buys to boost its industrial portfolio, and is already gearing up for its next move. Healthcare and retail look like other asset classes where some potential takeovers could appear this year.

On the more generalist investor side of things, interest will only be piqued where there are clear opportunities to fill gaps in portfolios while avoiding the creation of overlaps. This arguably makes such propositions less likely to happen, but that won't stop people looking, especially in cases where companies are seeking quick exposure to growing sectors that they may have been late to consider. Candidates here are less obvious, although there will always be those who dream of a big REIT tie-up.

Nuveen's acquisition of Schroders will naturally lead to some potential targets being identified, but the best M&A strategies will be driven by pragmatism rather than corporate ego. Taking control of big portfolios in one swoop has obvious attractions, but for sectors such as offices, piecemeal asset-picking could prove more value-accretive than wholesale company purchases. In real estate, bigger is often better - but many will be wary of the challenges, alongside the opportunities, that increased scale brings.