M and A

ANALYSIS: Waverton, London & Capital Marriage Proves Consolidation Trend Intact

Tom Burroughes Group Editor London 4 March 2024

ANALYSIS: Waverton, London & Capital Marriage Proves Consolidation Trend Intact

If the deal proves anything, it highlights that consolidation remains the name of the game for much wealth management in the UK and elsewhere.

Last week’s announced merger between London & Capital and Waverton – two UK-headquartered firms with important US links – speaks to continued M&A consolidation in parts of the UK wealth sector. And while the pace of change can be affected by rising interest rates and economic uncertainties, the broad direction of travel appears set.

To recap: last Thursday the firms announced the merger, building a business with total AuM of more than £17 billion ($21.5 billion). (Waverton has about £11 billion, with L&C making up the balance.) The financial terms – at least in terms of any hard numbers – were not disclosed. (Neither of these businesses are listed.) Both firms date back to 1986, and fit into the sort of mid-size entity specialising on certain clients. L&C, for instance, has made a point of serving expat US citizens who have in the past been shunned by foreign financial institutions. (That situation worsened after the FATCA legislation was enacted in late 2010 by the Obama administration.) Waverton and L&C have licences from the US Securities and Exchange Commission – an angle they may exploit further.

The combined business will be able to significantly broaden the reach and depth of the firms' US-connected wealth proposition, covering Americans in the UK and in Europe.

As shown by deals in recent years, such as the combinations of RBC Wealth Management and Brewin Dolphin (see here), the deals producing the business now called Evelyn Partners (see the story here), and the Rathbone-Investec unions (see here), the UK wealth industry is seeing a degree of mid-tier M&A. There are a few deals higher up the scale – last year HSBC in the UK bought the UK entity of Silicon Valley Bank, as a result of the broader “shotgun” weddings that SVB had to sign after hitting financial trouble. The UK industry is also being affected as Credit Suisse bankers become accustomed to life under the UBS masthead.

“In a post pandemic environment, with significant margin pressure, rising costs and static key revenue streams such as investment management fees, we are seeing an increasing number of mergers and acquisitions,” James Brown, director of client services, Compeer, told this news service. “However, it is by no means restricted to those firms that are suffering most. In the last couple of years there have been some notable mergers between large and mid-sized firms, both of which have relatively strong business performance. This is giving the firms instant scale and forming more dominant wealth management players.”

Ray Soudah, founder and chairman of MilleniumAssociates, an independent firm specialising in M&A and strategic advice for the wealth sector (among others), said the deal shows that the hunt for scale remains a major driving force in M&A in the sector. (Soudah is also a member of this publication’s editorial board.) "The merger  is another example of the pressure by shareholders to consolidate and obtain perceived cost saving synergies. However, there is a high risk of key staff and client defection, arguing against the notion of the bigger the better,” Soudah said.

Waverton CEO Nick Tucker last week said the deal will accelerate growth of the combined firm. 

Achieving scalability is the key, said Compeer’s Brown. 

“Although the UK wealth management industry is notoriously resilient, one area that it continues to suffer from is delivering consistent scalable results. The industry is excellent at growing revenues, but many fail to achieve this without similar or even greater increases in costs. With firms merging it is giving them access to the strengths of both firms, use of more advanced technologies, and allowing them greater access to economies of scale. Provided the integration runs smoothly, there should be efficiency gains on the back of it,” Brown said. 

Consolidation is increasing, he said. 

“We at Compeer forecast further consolidation and expect the larger players to therefore gain a greater market share. As at the end of 2022, the 20 largest wealth management firms had a combined market share of 64 per cent,” Brown said. “By comparison, 10 years prior to this the share of the top 20 firms was 62 per cent. However, the most notable difference was to be in the top 20 in 2022 a firm required £16 billion of AuM. In 2012 it was less than half this at £7 billion to enter the top 20. Continuing in this trend and with the expected rise in mergers and acquisitions we forecast the share of the top 20 will surpass 70 per cent within the next three to five years.”

Peel Hunt, the UK investment bank, agreed with the consolidation point.

"Wealth management remains a fragmented industry, which is suffering from an increased cost burden whether from regulation or requirement to invest in technology and client proposition. These factors tend to support further consolidation, whether through combination or private equity interest in the sector," Stuart Duncan, research analyst at Peel Hunt, said. 

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