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Wealth Management M&A Reached "Fever Pitch" Level In 2013 - Scorpio

Tom Burroughes Group Editor 18 December 2013

Wealth Management M&A Reached

The pace of global wealth management M&A reached a "fever pitch" level this year, as consolidation in the industry accelerated, a report says.

The pace of global wealth management consolidation reached a “fever pitch” level in 2013 with the price of deals topping the $8 billion level, with the average prices, in terms of percentage of assets under management, standing at 1.22 per cent, according to Scorpio Partnership, the consultancy.

The price/AuM figure is drawn from analysis of more than 60 transactions; a total of $760 billion of assets under management changed hands in 2013. To give some idea of how busy 2013 has been, the $760 billion amounts to 43 per cent of all assets acquired in M&A tracked by the firm since 2008.

“The M&A tempo has reached a new level. Most deals appear to be pursuing scale with the cost of doing business surging for many while the income levels are still under pressure. Notably, with valuations falling to a record low, we have seen more private equity firms taking active stakes in the market,” Sebastian Dovey, managing partner at Scorpio, said.

The M&A surge has happened for a number of reasons, including the issue of rising regulatory costs that have forced certain types of firms to build economies of scale while others have sold out of sub-scale areas to protect margins, for example. Credit Suisse has sold Clariden Leu (Europe); Julius Baer bought the non-US wealth arm of Merrill Lynch. There remain rumours, fairly widely circulated, that Societe Generale wants to sell its Asia private banking arm; Italy’s Generali has put the Swiss-headquartered BSI bank up for sale. Morgan Stanley has sold part of its international wealth management business to Credit Suisse.

In the UK, one regulatory driving force has been the Retail Distribution Review, which has led to some firms cutting certain levels of advice and encouraging players such as private equity firms to snap up independent financial advisors and other firms. This development has drawn concerns. (To see an article on this issue, click here.)

Pace to continue

Scorpio said it expects the M&A pace to be high in 2014.

“The question these findings raise is: how much further can M&A valuations actually fall? Our view is that 1.22 per cent may be running close to the baseline with some higher quality deals still securing a premium,” Dovey said.

The findings come from Scorpio’s Wealth Management Deal Tracker being released this month. The analysis also examines a total of 236 deals that have taken place since 2008.

Over the last four years, valuations were at their widest chasm in 2011 with international deals peaking at 3.61 per cent and domestic prices falling to 1.09 per cent. Two years later, these prices converged to a price ratio spread of 1.06 per cent-1.47 per cent.

Regional assets volumes have markedly increased in the last year on the North American and European continents. Some 47.6 per cent of all US AuM acquired in the last 6 years has occurred in 2013. Whereas 39.2 per cent of all UK AuM acquired in the last 6 years has occurred in 2013.

The UK market is the most active deal country for 2013. At the time of this press release, 25 of the UK deals involved independent financial advisory (IFA) business models. The same pressures which are having an impact on the UK’s market are influencing other markets as well; compliance, consolidation and aggressive expansion.

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