Riding the consolidation wave – M&A activity in Wealth Management

Wealth Management and Private Banking

21 April 2016

Wealth Management and Private Banking




Sponsor introducing: Richard Gray and Aisf Huq, EY and Andy Peterkin and Jonathan Hayley, Farrers

Facilitator: Sebastian Dovey


Key message

The key success drivers for M&A activity in wealth management are driven by four principles:

 The compatibility of the client base to the business strategy for the deal

  • The compatibility of the culture and service proposition of the merging organisations
  • The potential for synergies between operations to ensure an optimised business model
  • The eventual financial performance of the acquired business

For a wealth management deal to be considered successful each of these principles needs to be aligned across both the acquirer and the seller.


  • Consolidation of the market has continued in the past year, with focus on foreign investors coming in to the UK or the tying up of two UK businesses
  • Regulatory pressures are changing the due diligence time horizon process and the successful outcome of a wealth management deal
  • Technology is becoming a larger factor in M&A in the UK wealth industry either because of a need to renew digital legacy systems or acquire virtual (robo) advice capabilities

A number of core themes have emerged from the UK’s wealth management industry over the last year. The types of deals coming to market have evolved to take in to account the sweeping changes to regulation, adapting customer needs, consolidation, refining business models and recovering financial performances.

 “Regulatory capital acts as a big barrier to entry, although smaller businesses have a simpler operating model and can be more profitable” 

The process of running and managing an M&A deal is complex. Many of the deals are either foreign investors looking to invest in the UK market (there is now more evidence of this) or the traditional consolidation of domestic wealth managers. Firms and their investors are looking for the squeaky clean deals. However the due diligence process has intensified in the past 36 months and now requires considerable activity much earlier on by both parties in the evaluation process. There are now many more deal-linked warranties on the part of the seller that are required for a deal to progress. As such, there are a higher proportion of deals falling through at an earlier stage – a different process means less deals getting further through the stages.

 “Atomisation is an increasingly large part of M&A as well as M&A itself. Growing firms and those that are consolidating are equally capable of fragmenting.”

A major outcome of the M&A process is the effect on the client experience. At times this can lead to a much worse outcome for the client. However, it is not the case that all deals lead to a decline in the client experience – nor is it typically the intention of either party to bring about a worse experience as this would be destructive. Notably, if the clients are engaged in the process of the M&A the deal is more likely to be a longer term success. A possibly good example of an improved situation for clients has been the Cazenove/ Schroders deal. However, the opinion of many was that most deals of the last 10 to 15 years have not been ‘successful’ by many of the qualitative means that would be used to measure this.  What we have seen following several M&A situations is key client advisors or executives exit to set up their own business or join competitors, due in part to frustration over how clients and staff are treated in the new post-acquisition world.

 “M&A vertical integration is something at the forefront for many wealth businesses. However, first and foremost, there is the need to really understand client needs before firms are in a position to acquire a value chain.”

The shoe-horning of two firms into one combined entity can often have a negative outcome for the business proposition to clients and staff. Two direct consequences of this are the uplift in fees and the impact that cost reduction activities might have on service proposition. The exception to a potential fallout is the acquisition by PCIMs of financial planning services and professional advisers which act to build client experience than minimise it.

 “There is a growing shift away from investment-only portfolios to adding in financial planning. It is becoming a much more commoditised business.”

The appropriate size of asset base (measured by assets under management) is between GPB0.5-GBP3bn. There is greater need for growing synergies in larger GBP5bn+ transactions. Large fixed overheads of IT and now regulation are just two examples of synergies across larger asset deals.

 “Clients are expecting one thing before finding out the culture is different and not a fit –

culture is key.”

Handelsbanken and Heartwood found out for example that client and staff experiences need to back up the new proposition as firms go through cultural consolidation. When factoring in time horizons, it was said that there are two years ahead of the deal which are involved in preparing the company organisationally and financially, appointing the deal advisors and going through the transaction negotiations. This is then followed by the deal and the three year process of transitioning the operating company. That tends to coincide with a three year earn out process for the key stakeholders. In essence, a deal is not an overnight event. It is a process.

Re technology, many private banks are left with burdensome legacy systems that are costly and difficult to manage.

 “If you have a strong customer experience proposition you need to own its technology,”

was one observation.

UK private banks, in the midst of further regulatory pressures are looking to get back into the advice business. When considering business models specifically, larger private banks are seen as net sellers in the UK market for the foreseeable future. But, for those banks such as Lloyds, RBS and Barclays, the tide will eventually turn.

Finally, when considering the value of a wealth manager, what was considered the market rate for a quality business is currently 2.5 to 3 times revenue of the seller or a price of 2% of the seller’s assets under management, although clearly this varies based on the specific circumstances of the transaction and target. There is an attraction to the stability of revenues in the industry as the longer term trends within wealth management M&A look positive. 


  • Technology can provide wealth management firms with enormous opportunities but how to acquire it is the challenge
  • UK private banks are getting back into the advice market and will not be net sellers forever

Stable revenues are the key attraction in the wealth industry over the longer term