The eyes of international wealth managers may be on Asia, but the volume of M&A activity on the ground has been surprisingly understated.
In our five-year Deal Tracker report, we identified 15 major wealth management deals in Asia between 2008 and 2012, just 9% of WM transactions worldwide. By comparison, there were 58 deals in the UK alone over the same period.
To be clear, we are talking here about M&A activity between firms where the strategic rationale for the deal is predominantly to build wealth management market share.
With that in mind, it comes as less surprising that in almost every case the acquirer has been an international firm looking to ramp up its presence in the region.
In fact, two thirds of Asia’s wealth management transactions were acquisitions of Asian wealth management firms by an international player. The remaining one third was between international providers restructuring international operations.
Indeed, the only wealth management deal of note involving two Asia-based players took place in India in 2011, when Fullerton Securities & Wealth Advisors acquired the wealth management division of Pioneer Investcorp.
Here, the strategic rationale was to combine financial advice, investment banking and institutional broking into a full-service wealth management capability.
So while at one end of the spectrum global firms are buying market share in this fast-growing wealth region, at the other the Pioneer acquisition highlights the fragmentation of wealth management service provision in Asia’s domestic markets.
In this wide spectrum lies Asia’s wealth management consolidation conundrum. In theory, at least, the wealth management market across Asia should be ripe for consolidation. However, data show this kind of activity has been slow in coming.
The reason almost certainly lies in valuations. The interest of international players in expanding into Asia has inevitably put a premium on local pricing. Over the five-year period, the price-AUM ratio is 0.4% more for Asian wealth management firms than the international average.
Given the fragmentation among Asia’s local wealth management players, such toppy prices have almost certainly given Asian firms pause for thought about entering the M&A fray.
However, looking ahead prices are on a downward trend. The combination of difficult economic conditions and rising regulatory pressures are slowly deflating the world’s wealth management bubble.
More specifically, global firms are thinking much more carefully about which markets are core to their businesses and which are not.
In today’s terms, that means wealth managers are concentrating efforts on markets where they believe they have a strong enough proposition or brand to generate the additional client volumes they need to support the growing cost of compliance.
They are also far more willing than before to offload books of business in markets that they no longer consider core.
As global firms restructure and retreat, so valuations will continue to settle down. In turn, this should create the breathing space for local and regional Asian firms to consolidate and expand.
We expect to see acceleration in the volume of pan-Asian M&A activity in the coming months as a result of these converging forces and, with it, the emergence of more tailored propositions for Asia’s local wealth markets.