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

Tara Loader Wilkinson Editor Asia 4 October 2012


Average global wealth management M&A valuations have halved in two years, while Asia bucks the trend as the seller's market.

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.


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