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Merging success: Building strength through unification

September 2, 2022
clock 4 MIN READ

As the world emerged from the first wave of the pandemic, businesses looked to rebuild in order to meet evolving customer and client needs. Our content series explores ways in which wealth managers are enhancing their client base and client experience. 

We begin with an examination of the consolidation in the industry and the impact to the client. For many, the route to expansion and repositioning was through a merger or acquisition (M&A). And while many companies have traditionally used M&A to grow within existing markets, today more firms are using it to do something bolder: diversify and modernize.

Wealth management was among the most active sectors in the 2021 M&A spree and in 2022 the trend continues.

Merging Success: M&A in wealth management

Explore the key facts and figures from the U.S. and U.K. (PDF)

M&A deals soaring

Research from Echelon Partners found the number of mergers and acquisitions announced in 2021 involving U.S. wealth managers came in at 307—a record-setting numberwith private equity investment as a primary driver. DeVoe & Company found M&A activity in the U.S. RIA space reached another record year in 2021, with 242 transactions, a 52% increase over 2020.  In the UK wealth and asset management industry, there were 62 deals in H1 2021, up 265% on 2020 data, including deals involving Schroders, Oaktree and IQ-EQThe U.S. saw major deals such as LPL Financial completing the $300 million purchase of Waddell & Reed’s wealth management business and U.S. Bank purchasing PFM Asset Management.

For those looking to make an acquisition, there are numerous companies around the worldfrom fintech start-ups to companies valued in the billions of dollarsthat could be M&A targets for wealth management firms and private banks.

One major upside of these deals is the opportunity to bring new products and services to clients without the expense and risk of developing new services in-house. One example is JP Morgan’s buyout of UK-based robo-advisor Nutmeg. In his annual letter to clients in April 2021, JP Morgan CEO Jamie Dimon acknowledged that fintechs have “done a great job in developing easy-to-use, intuitive, fast and smart products.” He also noted that banks are often held back by “inflexible legacy systems” and “extensive regulation.”

M&A is not just about diversifying the business, finding new customers and new sources of revenue. While financial and business rationale is clearly the driving force to strike a deal, technology, customers, and culture are the true pillars of future success. And those assets should be considered in early-stage planning—even if the numbers stack up for a deal.

"Technology, customers, and culture are the true pillars of future success."

Deals for innovation

With technology now integral to both operations and customer expectations, wealth managers will increasingly find legacy systems inadequate to the needs of the digital age and may look to acquisition to plug those gaps. Yet, this is not just a servicing or cost reduction issue; technology continues to be a key driver of innovation.

National lockdowns triggered by the pandemic and the demand for online platforms and services have accelerated the development and adoption of tech solutions. At the same time, new technologies—from artificial intelligence to blockchain—are rapidly becoming features of mainstream financial services.

Acquisitive firms are looking to increase digitization as a way of transforming their business. Finding companies that are looking ahead will be key, and understanding how to integrate and build on their capabilities will be critical. This will enable wealth management leaders to drive positive change and transformation.

Digitization opens up new client opportunities

Business transformation is also likely to include opportunities to acquire new potential client bases. A deal predicated on buying a more modern approach could include digitally native clients—from younger audiences to entrepreneurs—who haven’t historically associated themselves with more traditional wealth managers.

For these acquisitions to be successful, it cannot be as simple as the old firm swallowing the new. Rather, you must walk a fine line to ensure that the original audience appeal remains in order to build the best organization for the future.

"You must walk a fine line to ensure that the original audience appeal remains in order to build the best organization for the future."

Bidding for talent

The future-focused organization recognizes talent is key. While the merging of two organizations’ cultures is challenging, the upside for the acquiring firm is that it can be an opportunity to “buy in” new talent, particularly with new skillsets and capabilities necessary to stay relevant in a new and constantly changing world.

In the midst of today’s “Great Resignation,” the deals with longevity will be those where talent and culture are considered as valuable as other earning opportunities, and the right people are included to help the new entity maximize its potential. This approach can include access to an outsourced partner’s talent alongside employees, which is increasingly becoming a “must check” on the M&A due diligence list. It’s important to recognize that value is not just in the essential core but also in the wider infrastructure.

As this decade drives forward, it is clear that M&A activity in wealth management remains a priority. With the opportunity for innovation, new customers and talent, the question is not “when or why,” but “how and with whom.”

Interested in learning more?

Explore our series.

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