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Wealth Management M&A Reached "Fever Pitch" Level In 2013 - Scorpio

Tom Burroughes Group Editor December 18, 2013

Wealth Management M&A Reached

The pace of global wealth management M&A reached a "fever pitch" level this year, as consolidation in the industry accelerated, a report says.

The pace of global wealth management consolidation reached a
“fever pitch” level in 2013 with the price of deals topping the $8 billion
level, with the average prices, in terms of percentage of assets under
management, standing at 1.22 per cent, according to Scorpio
, the consultancy.

The price/AuM figure is drawn from analysis of more than 60
transactions; a total of $760 billion of assets under management changed hands
in 2013. To give some idea of how busy 2013 has been, the $760 billion amounts
to 43 per cent of all assets acquired in M&A tracked by the firm since

“The M&A tempo has reached a new level. Most deals
appear to be pursuing scale with the cost of doing business surging for many
while the income levels are still under pressure. Notably, with valuations
falling to a record low, we have seen more private equity firms taking active
stakes in the market,” Sebastian Dovey, managing partner at Scorpio, said.

The M&A surge has happened for a number of reasons,
including the issue of rising regulatory costs that have forced certain types
of firms to build economies of scale while others have sold out of sub-scale
areas to protect margins, for example. Credit Suisse has sold Clariden Leu (Europe); Julius Baer bought the non-US wealth arm of
Merrill Lynch. There remain rumours, fairly widely circulated, that Societe
Generale wants to sell its Asia private banking arm; Italy’s Generali has put
the Swiss-headquartered BSI bank up for sale. Morgan Stanley has sold part of
its international wealth management business to Credit Suisse.

In the UK, one regulatory driving force has been the Retail
Distribution Review, which has led to some firms cutting certain levels
of advice and encouraging players such as private equity firms to snap
up independent financial advisors and other firms. This development has
drawn concerns. (To see an article on this issue, click here.)

Pace to continue

Scorpio said it expects the M&A pace to be high in 2014.

“The question these findings raise is: how much further can M&A
valuations actually fall? Our view is that 1.22 per cent may be running close
to the baseline with some higher quality deals still securing a premium,” Dovey

The findings come from Scorpio’s Wealth Management Deal
Tracker being released this month. The analysis also examines a total of 236
deals that have taken place since 2008.

Over the last four years, valuations were at their widest
chasm in 2011 with international deals peaking at 3.61 per cent and domestic
prices falling to 1.09 per cent. Two years later, these prices converged to a
price ratio spread of 1.06 per cent-1.47 per cent.

Regional assets volumes have markedly increased in the last
year on the North American and European continents. Some 47.6 per cent of all
US AuM acquired in the last 6 years has occurred in 2013. Whereas 39.2 per cent
of all UK AuM acquired in the last 6 years has occurred in 2013.

The UK
market is the most active deal country for 2013. At the time of this press
release, 25 of the UK
deals involved independent financial advisory (IFA) business models. The same
pressures which are having an impact on the UK’s market are influencing other markets
as well; compliance, consolidation and aggressive expansion.

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