As markets continue to digest the effects of the crisis in Ukraine and the ongoing pandemic recovery, fresh momentum in wealth management M&A is occurring.
Wealth managers have emerged from the pandemic relatively unscathed and have now returned to face meetings with clients and are gathering further assets, often arising from client cash flows accumulated through the pandemic. Historic UK pension reforms also continue to help new cash flows. However, the recent poor performance of stock and bond markets, particularly technology stocks, has depressed AUM and therefore cautious strategies are attracting stronger inflows.
The sharp rise in inflation, as well as ongoing supply chain issues and enduring pandemic-related pressures, still pose risks to many groups. Many are investing further in technology to improve their client experience, including user friendly apps and real time valuations. Proprietary custody platforms have been developed, which allow scaleable investment propositions, as well as facilitating greater efficiency and better management and client reporting.
Remarkable rate of recent activity
After a pause for reflection in the period following the emergence of Covid, the pace of M&A has picked up in the wealth management sector over the past 18 months. The market has become competitive again for quality assets with a proven ability to operate in post-pandemic conditions, particularly entities able to present clients with an expanded offerings, such as financial planning services and an ability to access a wider range of investments, such as property, infrastructure and private equity.
Newer business models – such as AJ Bell and Transact – continue to be highly rated and popular with investors. Pre-emptive bids to circumvent full sale processes have returned, as have trade buyers. For instance, in 2021 and early 2022 abrdn announced its acquisition of the subscription-based investment platform interactive investor, Aviva announced its acquisition of Succession Wealth and the Royal Bank of Canada announced its purchase of Brewin Dolphin.
We estimate that there are now over 30 private equity backed wealth platforms in the UK, up from a handful five years ago. European Sponsor interest continues, attracted by the growth profile of the sector. A recent example would be the acquisition of Ascot Lloyd announced by Nordic Capital in April 2022. Private equity fund flow from the US also has been a key feature in the UK, with recent transactions including investment announcement by Wren Sterling of a majority interest in investment funds affiliated with Lightyear Capital and acquisition announced by Flexpoint Ford of AFH Financial Group. This has pushed up the price of wealth platforms that are consolidating a fragmented UK IFA market.
Many wealth managers are now engaged in rolling up smaller IFA businesses and their AUM. Regional and privately owned firms have started to raise their own funding to complete with the sponsor backed consolidators. The demand for these smaller firms has pushed up pricing, making it harder for consolidators to create value from M&A. However, there remains a substantial arbitrage between the multiples paid for smaller firms, and the exit multiples for larger groups.
Banks and lenders remain supportive and are keen to put money to work, as long-term growth trends for the wealth sector are still robust. Even though we are still in a period of significant uncertainty, the recent level of activity has been remarkable, and the pace shows no sign of letting up.
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