Merger and acquisition prospects for wealth managers are improving, and will brighten even more as the year progresses.

Merger and acquisition prospects for wealth managers are improving, and will brighten even more as the year progresses, according to Steven Levitt, managing partner for Park Sutton Advisors, a New York-based investment banking firm.

“We’re starting to see a resurgence of interest from a variety of groups,” Levitt said, “with more acquisition interest in firms with assets under management ranging from $500 million to $2 billion".

The bulk of revived M&A activity will take place in six to nine months as regional banks are better positioned to do deals after recapitalizing their balance sheets, Levitt predicted.

His comments echoed ongoing discussions at last week’s American Bankers Association’s annual Wealth Management  and Trust Conference in Phoenix, where industry experts repeatedly urged bankers to take advantage of the market and buy advisory  firms this year.

Other potential buyers, Levitt said, include national financial service companies, foreign companies such as Credit Suisse, and, to a lesser extent, roll-up groups who remain hampered by tight credit markets.

In addition, wealth management firms with up to $2 billion in assets have also shown a considerable interest in making acquisitions of smaller firms and doing lift-outs of advisor teams, according to Levitt.

“They recognized during the downturn that their growth was from the market and not organic,” he said. “There are a lot of firms looking for a $50 million to $200 million AUM advisory firm with an older principal who lacks succession.”

Such deals, however, are less appealing to sellers because they are more likely to involve less cash, if any, at closing and tend to be seller financed.

Buyers who really want to make a deal “need to be prepared to put one-third of the closing price in cash at closing,” according to Levitt.

There is also a high degree of interest in wealth management firms catering to clients with at least $5 million to $10 million in assets, Levitt said.

“I am aware of numerous groups seeking ultra high net worth targets,” he said. “But given the scarcity of targets in the ultra high net worth arena, I am uncertain if these buyers are prepared to pay the premium necessary to entice sellers.”

Deal-making will accelerate as markets recover and  earnings and multiples rise, Levitt said, noting that median run-rate EBITDA multiples for the universe Park Sutton Advisors tracks is up almost 20 per cent from one year ago.

“It’s a combination of psychology and valuation,” he said. “A year ago people felt like they would be selling at the bottom. Now they’re more open to discussion.”

Levitt is scheduled to discuss M&A trends in a webinar on 20 April with Stephen Cordill, president, asset and wealth management group for Sanders Morris Harris Group and David Silvera, managing director for Rosemont Investment Partners.