THE PRICE IS RIGHT: WEALTH M&A SURGES

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This week witnessed frenetic wealth management deal activity, with three notable acquisitions hitting the press in the UK alone. But despite this apparent surge in M&A, our eighth annual Wealth Management M&A Deal Tracker report hints that 2016 could be apace with 2015 when it comes to deal flow volume. Last year, we recorded 124 deals in the sector, higher than any previous year in our assessment.

Deal activity over the last seven days show that regulation continues to be a large driver in consolidation, as firms seek to manage margins and refresh their strategic objectives. The founder of Almary Green indicated cost (and compliance cost specifically) prompted him to accept Standard Life’s offer on Wednesday. Meanwhile, the acquisition of Kleinwort Benson by Société Générale provides further evidence of the rush to scale advice businesses and LGT’s purchase of a majority stake in Vestra Wealth sees the Liechtenstein-based bank looking to gain a foothold in the British market.

But while these three examples highlight that M&A is still a viable strategy for larger wealth firms, our Deal Tracker assessment indicates that consolidation has gained most momentum among smaller institutions. Despite the uptick in M&A quantum, there was a sharp decrease in the total amount of assets under management involved, implying that activity was focused at the lower end of the market. In contrast with 2013, when USD780 billion changed hands, just USD408 billion did in 2015.

Another trend closely aligned to this, is the rising ratio of domestic to international deals. In 2015 we only saw 16 out of 124 deals happening cross-border [Figure 1]. The share of domestic deals grew across the majority of business models. The only exception to this is the types of firms “orbiting” wealth management, offering fiduciary services, brokerage, and other ancillary wealth propositions.

Figure 1: Domestic / International deals: 2008 – 2015

Figure1

The pursuit of quality over quantity may have had an impact on the pricing agreed among deal makers. In 2015 deal valuations rose marginally from 2.06% to 2.14% of price to AUM. The rising valuations of firms with under USD1 billion is indicative of the maturing independent advisor market; IFA and RIA deals combined comprised 52% of deals which happened in 2015.

Outside of the UK and US deal activity also gained ground. In particular, Switzerland’s wealth management sector regained confidence and chose to support growth through the corporate cheque book. Deals involving Swiss wealth management businesses were the largest on average, with the typical AUM per acquired firm at USD9.4 billion.

With businesses continuing to adjust to a new normal of tighter regulatory control and increasing client demands, the consolidation looks set to continue, although the size and shape of M&A will continue to evolve. We reported earlier this year that RBC announced it intended to partner with BlackRock’s FutureAdvisor as part of a pilot program. Could it be that the platform and technology sector will drive the future agenda of deal activity?

Still, with so much occurring, it may be worthwhile looking at the only definitive guide to mergers and acquisitions for the wealth space – The 2016 Scorpio Partnership Wealth Management Deal Tracker!

For more information on purchasing the report, please contact James Horrax (james@scorpiopartnership.com).

 

News from the world of wealth:

Julius Baer pulls out of bid for Barclays Asia private bank –  [Asian Private Banker]

Traditional financial services firms fear almost a quarter of their business is at risk from FinTechs – [PWC]

Santander Brasil eyes Citigroup unit to grow wealthy clientele – [Reuters]

FINRA Reports on Effective Practices for Digital Investment Advice – [FINRA]

‘Robo-advice’ approved by FCA but axes 220 jobs at RBS – [BBC]

 Thought of the week:

“My own business always bores me to death; I prefer other people’s.– Oscar Wilde

Coming events in the world of wealth:

Events

 

Valeriya Semenova Scorpio PartnershipAuthor: Valeriya Semenova, Analyst at Scorpio Partnership

Expertise: Val’s primary focus is data analytics and insight.

Background: Val holds a MSc Global Banking and Finance degree from Regent’s University London as well as BSc Economics and Finance from London School of Economics and BSc Economics from Higher School of Economics (Moscow).

 

Photo from Pictures-of-Money, used under creative commons license

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