Consolidation Will Continue In European Private Wealth Management Sector, Says PwC

Further mergers and acquisitions can be expected in the European private wealth management sector in 2006, according to Wealth Management Insights, a new report from the Corporate Finance group at PricewaterhouseCoopers (PwC). PwC says wealth levels are increasingly driven by

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Further mergers and acquisitions can be expected in the European private wealth management sector in 2006, according to Wealth Management Insights, a new report from the Corporate Finance group at PricewaterhouseCoopers (PwC).

PwC says wealth levels are increasingly driven by a mixture of demographic trends and more benign economic conditions, which are fuelling strong organic growth amongst wealth managers. However, chief executives of wealth management firms do not believe that organic growth alone will be sufficient to satisfy their growth ambitions, says PwC.

The report predicts that this executive ambition will drive continuing consolidation. Other factors feeding sustained volumes of M & A activity include the highly fragmented state of the wealth management market, the leverage that larger firms appear to be getting in the market and the rising interest of private equity houses in investing in the sector.

The report finds that valuations in the sector are changing, with the old adage that firms should be valued on the basis of 3% of private client funds under management largely disappearing. Buyers are adopting a more sophisticated approach to pricing that reflects profitability and market position. This is reflected in deals being completed at levels both well above and well below the old 3% rule.

“Wealth management consolidators, with strong brands and robust systems with spare capacity, are seeking to take advantage of M&A as a route to cost reduction benefits through back-office rationalisation and front-office efficiency gains,” says Steve Cater, wealth management sector leader, Corporate Finance, PwC. “Deals will ultimately be driven by competitive pressures and, with a surplus of buyers to sellers, we expect to see at least one organisation pay a ‘strategic premium’ – in other words for organisations seeking to exit the market, now is a great time to sell. Historically the majority of deals has been truly domestic and while we don’t expect this to change dramatically, there is a rising emphasis on cross-border deals. In particular, investment into the UK and Switzerland are increasingly being evaluated, as well as high growth markets like the Middle East.”

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