Mature markets dominate surge in M&A valuations

Deal making in global wealth management M&A in 2014 had a solid year with average prices rebounding to 2.1 per cent of assets from 2013 lows, according to Scorpio Partnership’s 2015 Wealth Management Deal Tracker report. 

At a macro level the results for 2014 suggest a recovery in valuations is taking place across the industry with less emphasis being placed on quick sales. In fact, 2014 is the first year since 2008-2009 where average valuations have increased. 

The evidence also suggests that in 2014 the Swiss market witnessed a significant changing of hands of assets, with $138.3bn (€121.4bn) changing firms. This figure represents 59 per cent of all assets shifted in Switzerland since 2008.

The implication of this is that the Swiss market is still undergoing a prolonged adjustment which has its roots in the recent changes in global regulation and increased operating costs for the Swiss-based operators this has resulted in. 

Beyond the Swiss market, the report also found that across the timeframe, 60 per cent of all transactions occurred in Europe, 23 per cent in North America and just 14 per cent in Asia Pacific. This distribution of deals highlights the continuing dominance of mature market wealth providers.

The UK meanwhile has continued to see consolidation across the sector, spurred on by the increasing demands placed on firms post retail distribution review (RDR). Of the deals completed last year, 26 were in the UK. 

This trend of consolidation in the UK wealth management sector is not new. Between 2008 and 2014, a clutch of mass-affluent serving firms – AFH Financial Group, Ashcourt Rowan, Bellpenny, Succession Group and Towry – have taken control of $16.7bn between them. The analysis does not include the recent announcement of the Ashcourt Rowan-Towry deal either, suggesting there is still a way to go in consolidation terms.

The broader point to be drawn from the research is that a combination of regulatory requirements, compliance costs and a congested market are forcing firms to focus on developing a compelling and sustainable proposition. 

Generating scale can offset some of the business cost challenges, and centralised business processes can reduce duplication but fundamentally, the old private banking, wealth management and advisory-led models are being shaken to their core.

As clients continue to seek value from their relationship, providers and those whose models complement one another will continue to be linked if only because the business sense to join forces and provide greater value is becoming irresistible, particularly in developed wealth markets such as the UK.

This is before we consider growing impact of firms with lean, online operations such as Nutmeg, WealthFront and Betterment. While robo-advisers will not necessarily replace traditional wealth managers, they do go to the heart of the sector’s biggest challenge – how to demonstrate value in the digital age. 

Beyond this there is also the role of private equity owners of wealth firms to consider as they continue to revise models, forcing economies and efficiencies from their holdings.

In short, M&A activity in the sector is not just about ensuring the price is right, but the strategic business fit must be as well.    

 James Horrax is a senior associate at wealth management think-tank Scorpio Partnership. Further information on the Scorpio Partnership Private Banking Benchmark 2015 from 

annie@scorpiopartnership.com