Flurry of M&A activity in wealth management driven by search for scale

Credit Suisse was at the centre of a mini M&A bonanza last month announcing both the acquisition of Morgan Stanley’s EMEA wealth management business and the sale of JO Hambro Investment Management in the UK.

Not to be outdone, blue-chip Schroders announced its plans to buy blue-blooded rival Cazenove Capital. The three deals are symptomatic of the changing landscape of UK wealth management.

Of the three deals, in fact, the Schroders-Cazenove alliance is the largest with a ticket price of £424m (€492m). Across the whole of its retail asset management and private banking business, Cazenove Capital has some £17.3bn of assets under management. The lion’s share of this total is managed by Cazenove’s private banking business, which has assets under management of £12.2bn.

By contrast, Schroders’ business is dominated by institutional asset management and, to a somewhat lesser extent, retail asset management. These units manage some £123.7bn and £72bn respectively. By contrast, Schroders’ private banking business is by far its smallest business line with £16.3bn under management.

The deal is a beacon for the growing pressure for scale in the UK’s highly regulated and competitive environment, which has brought these historic rivals together. If the management teams handle the integration well, the combined private banking business will become a significant force in UK wealth management, with some £28.5bn in client assets.

Worthy of note

Credit Suisse’s acquisition of Morgan Stanley’s Emea wealth management business is equally sensational as it sees both players retrenching to core markets. The deal excludes Morgan Stanley’s Swiss business, but includes $13bn (£8.5bn) of assets in London, Milan and Dubai. The deal price has been estimated at $150m.

Roughly, 80 per cent of the business is managed through London, where Credit Suisse wants to become a top 10 player. Morgan Stanley, meanwhile, has its focus on markets where it has the scale to maximise profitability.

Meanwhile, JO Hambro’s exit from the Credit Suisse group is a partial management buyout, which will see the Bermudian investment firm, Utilico Investments, acquiring 62.5 per cent of the UK holding company JOHIM via its portfolio company Bermuda National. The JOHIM management will own the remaining 37.5 per cent. The deal is valued at £50m and JO Hambro has some £3.6bn under management and a further £4.8bn  in assets under administration.

Credit Suisse bought JO Hambro in 2001, during the UK’s last wealth management boom, for £60m. It remained independent within the Credit Suisse group, providing a more traditional UK approach to portfolio management. JO Hambro will continue to provide investment management services to Credit Suisse private clients after the deal is closed.

Of note, Bermuda National also owns Bermuda Commercial Bank and Westhouse Securities, a UK institutional stockbroking business and the group will be looking for synergies with these entities to grow its wealth management capabilities.

While it is perhaps unfair to compare these deals directly, the available data suggest price to assets ratios ranging from 1.2 per cent and 2.5 per cent, which is in line with UK trends. Over the last five years, there have been some 60 wealth management transactions in the UK and average deal prices have fallen from 4.2 per cent in 2008 to 1.4 per cent in 2012.

With a total of £24.3bn of wealth management assets changing hands in these three deals, it suggests that the UK has lost none of its shine for players with a committed strategy. Building scale, however, remains a challenge. If these deals are anything to go by, a figure of less than £10bn of wealthy clients’ assets under management is sub-optimal for a mainstream player. 

Catherine Tillotson is managing partner at wealth management think-tank Scorpio Partnership