As markets continue to digest the effects of the crisis in Ukraine and the ongoing pandemic recovery, fresh momentum has returned to the M&A space for asset and wealth management companies.
Fee pressure, which has been a feature of the post-financial crisis period, continues to intensify – driven by customers seeking better value for money and heightened transparency. The industry also remains inefficient and quite antiquated from a technology standpoint, so there is significant scope to streamline further.
In the UK, we anticipate continued action from asset managers, as the sharp rise in inflation, as well as ongoing supply chain issues and enduring pandemic-related pressures, still pose risks to many groups.
While a number of boutiques with strong and differentiated processes remain well positioned for the future, smaller groups with weaker business models could seek to merge with, or get taken over by, platforms with stronger international distribution capabilities. Additionally, all businesses will be looking to further reduce fixed costs by increasing outsourcing efforts.
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 sharply in the wealth and asset management sectors over the past 18 months. The market has become incredibly competitive again for quality assets with a proven ability to operate in post-pandemic conditions, particularly entities able to present clients with an expanded offering.
Banks are continuing to sell or merge asset management arms – as seen by the Ameriprise Financial acquisition of BMO Financial Group’s EMEA Asset Management business[i], as well as by the private equity firms GTCR and Reverence Capital acquisition of Wells Fargo Asset Management from Wells Fargo & Co.[ii]
Larger asset managers have expanded capabilities, as seen by the T. Rowe Price acquisition of US-based alternative credit manager Oak Hill Advisors[iii]. We have seen similar capability expansion in the UK, as evidenced by the Schroders acquisition of River and Mercantile Group’s UK Solutions division (RMSD) [iv], as well as the Schroders acquisition of a 75% shareholding in Greencoat Capital – one of Europe’s largest investment managers dedicated to the high-growth renewable infrastructure market[v].
In wealth, newer business models – such as AJ Bell[vi] and Transact[vii] – continue to be highly rated and popular with investors. Pre-emptive bids to circumvent full sale processes have returned, as have trade buyers, with the latest being abrdn’s plans to acquire the subscription-based investment platform Interactive Investor[viii], the Aviva plc acquisition of Succession Wealth[ix] – and the Royal Bank of Canada proposed acquisition of Brewin Dolphin[x].
Private equity fund flow from the US also has been a key feature in the UK, with recent transactions including the Wren Sterling majority investment from investment funds affiliated with Lightyear Capital[xi], and the Flexpoint Ford acquisition of AFH Financial Group[xii]. This has pushed up the price of wealth platforms that are consolidating a fragmented UK market.
Banks and lenders remain supportive and are keen to put money to work, as long-term growth trends for the wealth and asset management sectors have strengthened over the past 18 months. 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.