Asia wealth M&A deals bigger than global average

Wealth management industry M&A deals done in Asia Pacific since 2008 have been larger and commanded a higher price than the global average, according to consulting firm Scorpio Partnership.

The firm's third wealth management DealTracker report – due for release soon – analysed 85 global wealth management M&A deals during 2013 and also covers six years of M&A data, going back to 2008. Of the 85 deals completed this year to date, 60 occurred across six regions. A further 25 deals occurred in the UK, but they were typically smaller in size and focused on the financial advisory sector.

Two trends emerged from the research in respect of the Asia-Pacific wealth management markets. The first is the volume that has been acquired since 2008 is on an upwards trend. The second is an index created by Scorpio to measure the net propensity to acquire or sell in the wealth space for a given region.

The Asia-Pacific assets acquired in the last six years make up 16.2% of the $1.77 trillion in total global assets acquired, which amounts nominally to $286.5 billion. The average size per deal in the region is significant – at $17.9 billion it is 52.5% larger than the global average of $11.74 billion.

Regions by value of wealth management M&A deals, 2008-2013

It is also worth noting the value of a wealth manager, as measured by a ratio of purchase price to assets under management. Over the last six years firms in Asia Pacific have been valued at 3.76%, significantly higher than the global average of 2.32%, indicating a significant premium attached to assets in Asia Pacific. More interestingly, Scorpio speculates whether this premium is encouraging wealth managers who do not have scale in the region to sell their businesses.

The second trend emerging from the DealTracker analysis is the propensity of wealth managers in the region to acquire or sell a business. This gives a good indication of the consolidation and/or expansion that occurs in the industry relevant to the price of assets. The figure below shows the number of wealth management firms sold per year.

Regions by wealth management M&A deals (number of sellers, 2008-2013)

If on a global scale there is M&A equilibrium between the buyers and sellers of transactions, then there is a net propensity score of 0. For the Asia-Pacific region there is a propensity score of -6. This means Asia-Pacific wealth industry participants are much more likely to be net sellers of businesses. In sharp contrast, the Middle East has a net score of +7, indicating a high propensity to buy.

Regulation is undoubtedly pushing up costs for wealth managers, which produces consolidation pressure in its own right. In addition, revenue growth for firms remains constrained. Such issues, coupled with the desire to buy into the growing wealth markets of Asia Pacific, means the wealth management industry in the region is in a state of flux.