For firms that made it through the downturn relatively
unscathed, the increase in mergers and acquisitions in the wealth
management sector will give them an opportunity to sink or
As sentiment among wealth managers shifts, more capital has
become available and companies right-size, banks, trust companies,
wealth managers, and bank brokerages that are in a strong position
to expand into a new market and acquire new units, will do so. But
it is also the moment when companies without the capital - and
stability - will get left behind.
"If you can be bold you can make acquisitions now," said Alois
Pirker, the research director at Aite Group, in an interview last
week. "If you're weak to start out it will be hard to expand."
Sola Akinola, a research manager of the Americas at
Mergermarket, said that the U.S. financial services sector has seen
a steady increase in M&A values since the second quarter of
last year. Year-over-year the current quarter is up 34% by value
and 21% by deal volume.
Meanwhile, a slew of recent M&A and initial public offering
announcements have been made: Envestnet, a company that provides
Web-based services for financial advisors, filed for an IPO worth
up to $100 million last month.
In February, Bank of New York Mellon Corp. [BK] announced a
$2.31 billion deal to acquire PNC Global Investment Servicing, a
back-office services unit, from PNC Financial Services Group Inc.
"We definitely see that the capital markets are getting better,"
Pirker said. "There is money available for initial public offerings
and firms have more of an appetite for moving into new markets
because there is more opportunity right now to grow their strategic
He said that a number of units are being spun off by larger
companies that want to reduce their footprint, giving smaller firms
more opportunities in the market. Last week, for example, Citi spun
off Primerica in a $320.4 million IPO of approximately 21.4 million
shares of Primerica common stock for $15 per share. And in
September Royal Bank of Canada [RY] announced it would acquire J.P.
Morgan's registered investment advisor servicing business, allowing
Royal Bank of Canada to gain significant traction in the RIA
At the same time, structures are changing. When Broadridge
Financial Solutions Inc.'s sale of its Ridge business to Penson
Financial Services Inc. closes later this year, it will make Penson
Financial the nation's second-largest clearing firm.
"The units that are changing hands right now are really
redefining the landscape as we knew it before the crisis," Pirker
said. "The time of sitting on the sidelines and watching where the
crisis is going is over."
Dan Seivert , the founder of Echelon Partners, said that with
the Dow Jones Industrial Average close to 11,000 the deals should
continue. "Buyer interest is picking up and the buyers are seeing
that if the markets continue to go up that will push up valuations
and they want to make their acquisitions before the market goes up
too much," he said.
Part of the shift in the wealth management space, explained
Pirker, is that the larger firms like Bank of America Corp. [BAC]
and Wells Fargo [WFC] are expanding into what is being called the
universal banking model, which encompasses both the retail banking
and retail brokerage space. If firms are successful at cross
selling between the bank and brokerage side that creates a lot of
pressure for the bank-only players and brokerage-only players to
change with the times, he said. "The evolving market has pushed a
lot of firms to ask: 'What does this mean for me? And do I have to
buy a wealth management unit?' This obviously generates a lot of
activity," he said.
Chip Roame, a managing principal at Tiburon Strategic Advisors,
said at the American Bankers Association conference in Phoenix,
that now is a good time for banks to buy mid-size RIA firms with
$200 million to $1 billion in assets under management.
Why? The principals at RIA firms are aging, Roame said, with the
average age of principals increasing from 51 to 55, pushing them
toward retirement age. In addition, larger RIAs have fewer exit
opportunities, he said, since their firms are worth too much for
their employees to purchase.
"This leaves retail banks to purchase the firms, seek to retain
the principals for a short time to transition clients, pay out a
fair price if clients are retained, and seek over time to cross
sell those clients banking products to boost margins and make the
transitions profitable," he said.
For those interested in the next big M&A moves, Pirker said
to keep an eye on Barclays, which is looking to acquire in the
retail banking space either inside or outside the United States.
With the acquisition of Lehman Brothers Holdings' U.S. operations,
Pirker said that he thinks it is likely Barclays will also look to
gain a foothold in the wealth management space.
Meanwhile, Canadian banks having fared well in the crisis, are
well capitalized, and are always eyeing opportunities in
neighboring markets. With the Canadian dollar strong, Pirker said
that he expects to see more M&A activity out of Canada.
Another to watch for is HSBC, which also made it through the
crisis in one piece, although it got hit in the United States a
bit. He said. HSBC is looking to grow in the United States as part
of its strategic plan, "so we'll see more from them as well."
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