Business consultancy updates report on world wealth-business merger activity. An update to KPMG International's 2004 report Hungry for More indicates that, despite a marked reluctance on the part of outsiders to invest in Asian-Pacific firms and an overall slowdown in European deal flow, the number of wealth-management acquisitions is likely to increase in coming years, continuing a healthy pace established over the previous several years.

The updated survey of 87 private banks around the globe - conducted several months ago but looking mainly at activity in 2004 - shows a sharp appetite for acquisitions in the global wealth industry. Though the number of transactions in which a responding institution was a participant increased 26% in 2004 over 2003, the average publicly disclosed deal decreased in value to $100 million from $140 million in 2003. Deals worth $250 million or more accounted for just 15% of the total in 2004.

Of the world's regions the Asian-Pacific zone edged out North America as the busiest arena for wealth-business acquisitions, accounting for 38% of all transactions versus 37% for the U.S., Mexico and Canada.

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Despite the fact that 37% of respondents named Asia-Pacific as the region with the most growth potential, only 14% said they actually wanted to acquire an Asian-Pacific-based wealth advisory or private bank.

Part of the reluctance to enter or expand in the Asian-Pacific wealth market is due to perceived "integration" issues, says KPMG. It turns out, however, that nearly half of those citing "integration" as a barrier to acquiring Asian-Pacific businesses are really worried about cultural differences - which run the gamut from language barriers to fear of government intrusion to a lack of transparency. That said, North American banks were generally more prosaic about their reluctance to enter Asian-Pacific markets through acquisition: they tend to think that firms in the region are too pricey.

Tempting 

But KPMG seems determined to make the case for Asia-Pacific, especially with regard to its big developing markets. The consultancy cites China's 9.5% year-on-year gross-domestic-product growth in the first quarter of 2005 and the $1.2 trillion in liquid assets held by wealthy individuals at the end of 2003 as signs of a growing high-net-worth population.

In addition to becoming more numerous, China's wealthy private investors are growing more sophisticated, says KPMG. "One investment class gaining prominence is the Chinese mutual fund," the report says. The recent successful introduction of exchange-traded funds is further indication of a willingness in China to jump on new investment vehicles, according to the consultancy.

The Chinese banking market is also becoming more open to foreign investment, notes KPMG. As of 31 October 2004, 62 banks from 19 countries had set up 204 operating entities in the country.

KPMG points to similar growth in the Indian wealth-management industry, boosted by an economic growth rate of about 8% per year, high personal savings and - as in China - a growing fondness for securities investing, with Indian mutual-fund assets under management jumping 23% in the four years through 2003.

The Indian wealth-management industry caters to a wider swathe of the population than China's, from a large and growing upper-middle class to an even faster-growing cadre of ultra-high-wealth families. And, given the prospect of India's high-net-worth population nearly doubling by the end of this decade, KPMG says there is still strong scope for growth in India's wealth-management industry.

Swiss constriction

Meanwhile in Europe, traditional private-banking stronghold Switzerland is being forced to cope with change as well - though largely of a less favorable sort. Swiss banks are feeling the lash of competition as neighboring countries improve privacy measures and investment options for the kind of high-net-worth customer whose expatriated wealth used to form the bedrock of the Swiss private-banking industry. Swiss banks are also feeling the pinch of pressured margins, rising compliance costs, a changing tax regime and generally fussier customers. That means Swiss private banks will have to watch their margins and expense ratios very carefully, says KPMG.

But with over a third of the world's private-banked assets, Swiss banking is still an attractive market. If it were all dried up - or anything near it - it wouldn't have seen the number of deals it has witnessed in recent years, says KPMG, which expects Swiss-market-focused M&A activity to remain brisk through the next several years.

That's not the case for European M&A activity generally, however. The number of Continental wealth deals actually decreased in 2004; an outcome in keeping with a slowing trend going back to 2001.

KPMG is an Amstelveen, Netherlands-based accountancy and business consultancy.

Click here to download a copy of the new report, and here for a copy of the old one. Confusingly, the two reports have the same title. -FWR

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