In the still very fragmented UK wealth industry, M&A activity is growing to achieve greater scale and develop new skills to meet the evolving needs of clients
Private banks are increasingly looking to expand operations, with mergers and acquisitions (M&As) becoming increasingly common.
Last week, Swiss bank Union Bancaire Privée acquired SG Kleinwort Hambros — Société Générale’s Swiss private banking division and wealth management operations in the UK and the Channel Islands.
Private banks are feeling optimistic about further expansion. According to a report by Cerulli, more than two-thirds (68 per cent) of private bank and bank trust executives are actively considering M&A opportunities to grow and adapt their businesses.
“Mergers are inevitable as costs rise inexorably and new client acquisition becomes more and more difficult,” says Kim Cornwall, former director of private banking at SG Hambros. “The UBP acquisition of Kleinwort Hambros in the UK and Société Générale Private Banking Suisse has been a long time in the making,” he adds.
Mr Cornwall believes price was a big issue and Société Générale had to reevaluate its objectives to shift these assets.
According to a UBP spokesperson, the acquisition will further increase the bank’s footprint in Switzerland and boost its expansion in the UK and the Channel Islands.
SG’s expertise in private banking, asset management and wealth planning “has long been recognised in the industry” and is an “ideal complement” to UBP’s know-how in wealth management solutions, the spokesperson adds.
“Going forward, many financial owners will take a long, hard look at the performance of these wealth management investments and conclude that the quick and easy turnarounds with big uplifts are simply not there,” Mr Cornwall explains.
They will have to “face the reality” of today’s valuations and “make adjustments” to the asking prices, just as SG has done.
Ray Soudah, founder of Zurich-based corporate finance consultancy MillenniumAssociates, believes this deal will need a lot of work for it to be successful. “Clients generally don't like uncertainty and this merger — especially in the UK — will need substantial attention to retain many of the seller’s UK domestic clients, especially if a brand change is envisaged,” he says.
“The transactions do not indicate any trend or further deal expectations in Switzerland, whereas in the UK the size-hungry private equity-funded acquirers have not lost their appetite.”
Barbell effect
This year proved challenging for UK wealth managers, with cyclical factors such as market volatility, high interest rates driving investors into deposits, and inflation pushing up costs.
In contrast, structural changes, such as clients’ needs from intergenerational transfer and new money — together with product and solution innovations like private assets; increased regulations such as consumer duty; and technology innovations like AI — all pressure firms’ traditional organic growth and performance strategies, according to Ian Woodhouse, board and executive adviser to wealth management firms, technology vendors and fintechs.
“Management at many firms are taking major steps to either revamp their organic strategies or to engage in significant M&A combinations,” he says.
Hargreaves Lansdown has recently agreed to a £5.4bn ($6.9bn) takeover by a group of private equity funds.
“There looks to be a shift underway in a still very fragmented UK wealth industry towards more of an industry barbell effect, where firms either acquire greater scale — with several larger firms now having £50bn to £100bn in assets under management (AUM) — or being small and specialist,” Mr Woodhouse continues.
“The middle ground of firms with £20bn in assets is now coming under more pressure from scale and resource challenges to adapt to the rapidly changing environment.”
Successful integration
Last year, UK-based Rathbones, which manages £80bn in assets, merged with Investec Wealth and Investments UK, a mid-sized player that added a further £20bn in AuM. Commentators believe this integration is still a work in progress, but early signs look encouraging.
Mr Woodhouse says new and traditional aspects of success are emerging, with Rathbones making investments in digitalisation across key areas.
Success also comes from the aim of avoiding complexity by merging companies with similar business models. “The deal with Investec allows for cross referrals between the Investec Bank arm, which remains independent,” Mr Woodhouse explains.
“So Rathbones and Investec both benefit from an arm’s length partnership that avoids the need for complex integration, but allows each to cross-sell to each other’s client base,” he adds.
Both management teams have had prior acquisition experience. Rathbones acquired Glasgow-based Speirs & Jeffrey in 2018, and Rathbones acquired Barclays Wealth’s court of protection team in 2019, which had £500mn AUM at the time. For Mr Woodhouse, such experience is crucial for future M&As.
“These may not have always been easy combinations, but provided management with valuable learnings to refine their integration playbook and approach,” he states.
Communicating a shared future vision can also be helpful for successful integration, and “Rathbones exhibits this,” says Mr Woodhouse. This may have been made easier as Investec retains a shareholding in the merged group.
Looking ahead, Mr Woodhouse believes M&As will look beyond immediate benefits and place more emphasis on developing new capabilities, skills and innovations, to meet changing client needs. This will be done through new approaches to digital interaction, product innovation and skills enhancements.
