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Roll Up, Roll Up, Wealth Management Firms Are Going Cheap

Tara Loader Wilkinson

4 October 2012

Average wealth management mergers and acquisitions valuations have halved in two years, and are set for further falls, presenting lucrative opportunities for firms eyeing rapid growth. 

However those looking to acquire in Asia may find themselves paying a premium, as demand drives prices higher. 

According to the 2012 Wealth Management Deal Tracker released this week by consultant Scorpio Partnership, the valuations benchmark is now resting at 2 per cent of assets under management compared to nearly double that in 2010. There are strong indicators this will continue downward to 1.5 per cent in the next one or two years, said the report.

This has spurred a fuller pipeline, and M&A in wealth management has maintained pace in the past 21 months, with over $9.42 billion being spent on deals involving high net worth client funds.

The report analysed 65 deals from the first quarter of 2011 to 30 September 2012.

The volume of high net worth assets purchased through deals during 2011-2012 totalled $635 billion – essentially 4 per cent of all assets currently managed by the global wealth management industry.

The major markets of deal making were continental Europe, including Switzerland, where $337.9 billion changed ownership. The UK asset transfers through M&A hit $80.2 billion, while Asia M&A resulted in $102.5 billion changing ownership. Asia is the key "sellers market", said the report, as many firms there are looking to grow quickly and will pay a premium for an attractive business. 

Emerging market dominance

Emerging market businesses are commanding a premium valuation in the range of 2.7 per cent to 3.4 per cent of AuM, but there is little evidence to show that the values are justified by the longer-term benefits of the additional business to the bottom line.

The “buyers’ market” is the UK, where the valuations of wealth managers are trending lower, with an average at 1.1 per cent of AuM. Pressures such as the transition to the new Retail Distribution Review are forcing firms to reconsider their ownership structure.

"There is a strong interest among the top 50 market players in quickly boosting their emerging market books of business as they strive to increase their international business footprint," said Sebastian Dovey, managing partner.

“This is now a race where M&A may make the difference. The mid-sized players recognise that to compete they need to bulk up their AuM and our expectation is the tidemark for an international wealth management business to ride comfortably through the next decade is $50-70 billion in AuM,” added Dovey. The premium deals are for businesses with $5-20 billion in AuM.

He said the first quarter is increasingly becoming the preferred M&A deal announcement period. It is forecast that Q1 2013 will again post a high number of deals.