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Wealth management M&A valuations benchmark hits two per cent of AUM


Mergers and acquisitions in wealth management has maintained pace in the past 21 months with over USD9.42bn being spent on deals involving high net worth client funds.

The valuations benchmark is now resting at two per cent of AUM compared to nearly double that in 2010.

However, there are strong indicators this will continue downward to 1.5 per cent in the next 12-24 months. This is according to the 2012 Wealth Management Deal Tracker released by Scorpio Partnership. The report analysed 65 deals from Q1 2011 to 30 September 2012.

The volume of HNW assets purchased through deals during 2011-2012 totalled USD635bn – essentially four per cent of all assets currently managed by the global wealth management industry. The major markets of deal making were continental Europe including Switzerland where USD337.9bn changed ownership. Separately, the UK asset transfers through M&A hit USD80.2bn. While Asia M&A resulted in USD102.5bn changing ownership.

The appetite for M&A is growing but the indicators are that the premium deals are for businesses with USD5bn to USD20bn in AUM.

“There is a strong interest among the top 50 market players in quickly boosting their emerging market books of business as they strive to increase their international business footprint,” says Sebastian Dovey, managing partner. 

“This is now a race where M&A may make the difference. The mid-sized players recognise that to compete they need to bulk up their AUM and our expectation is the tidemark for an international wealth management business to ride comfortably through the next decade is USD50bn to USD70bn in AUM,” says Dovey.

A total of 39 major deals announced between Q1 2011 and Q3 2012 were onshore domestic market events, while q26 deals in the same period had a multiple-market coverage.

Emerging market businesses are commanding a premium valuation in the range of 2.7 per cent to 3.4 per cent of AUM but there is little evidence to show that the values are justified by the longer term benefits of the additional business to the bottom line. This is a “sellers’ market”.

The “buyers’ market” is the UK where the valuations of wealth managers’ is trending lower with an average at 1.1 per cent of AUM. Pressures such as the transition to the new regime of RDR (retail distribution review) are forcing firms to reconsider their ownership structure.

The first quarter is increasingly becoming the preferred M&A deal announcement period. It is forecast that Q1 2013 will again post a high number of deals driven by activity in the UK.

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