KPMG Says Private Banking M&A on the Rise

Contributing Editor

12 July 2005

Mergers and acquisition activity among global private banks and wealth management firms rose by 26 per cent in 2004 from the previous year, according to recent research from KPMG, the business services consultancy. More than 90 per cent of the private banks and wealth managers surveyed plan to make an acquisition in the next three years. UK deals accounted for 77 per cent of all deals in 2004, although last year was the first year for over four years that saw an increase in the proportion of cross border deals. The average publicly disclosed deal value was $100 million with only 15 per cent greater than $250 million. The study is indicative of research released by WealthBriefing which showed a 58 per cent rise in the number of acquisitions in the wealth management sector in the first five months of 2005, compared with the same period a year ago. Up until the end of June there had been 41 acquisitions in the sector, compared with 26 in the first six months of 2004. This level of M&A growth is likely to be sustained as the report also noted a significant increase in planned acquisition activity in all regions over the next three years. Ninety-one per cent of all respondents intend to make an acquisition in the next three years opposed to the 45 per cent who had made an acquisition in the previous three years. The Asia-Pacific region remains the most active market at 38 per cent of all transactions, although the North American market has grown significantly from 24 per cent to 37 per cent of total deals over the previous year. The volume of deals in Europe as a percentage of the total transactions fell for the fourth consecutive year to 22 per cent. In absolute terms, the number of European transactions decreased by 11 per cent in 2004. Consistent with last year, Asia-Pacific was considered the most dynamic region, with 37 per cent of respondents indicating this. Nick Griffin, Partner and Head of KPMG Financial Services strategy practice said “Despite the significant increase in private banking deals in the past year, the sector is now showing an even greater appetite”. He added: “This hunger for deals is likely to be in part satiated by the number of potential targets for sale. One in seven respondents indicated that they plan to sell or close some private banking or wealth management operations in the next three years.” Despite the overall increased appetite for deals most respondents are putting organic growth at the heart of their growth strategies which is a reflection of the fact that smaller scale of most transactions does not provide sufficient growth on its own. Organic growth is considered relatively more important in less mature markets. “Rising prices and a shortage of suitable targets in more mature markets, coupled with perceived integration issues worldwide, are resulting in many private banks looking to primarily grow organically,” said Mr Griffin. The study is an annual update of the first study Hungry for More? - Acquisition appetite and strategy in the global private banking and wealth management industry, which was published in June 2004. The update is based on interviews with 87 private banks around the world.