Mergers and Acquisitions in the Wealth Management industry

Lafferty 12th International Private Banking Conference London, 26 June 2001

Strategic developments in Wealth Management industry







Industry remains (perceived) highly profitable and remains an area which attracts corporate development attention (i.e. mergers, acquisitions, alliances, organic build)


Greater reliability of earnings stream




Recurring fee income




Relatively little / no credit risk/Low capital/High RoE.

Despite the recent downturn in M&A deals in most other industries, the wealth management sector remains buoyant. Banking sector M&As (nos. of deals) estimated at over 10% of all M&A in the 1st 9 months of 2000. We see this continuing.

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Some Reported deals in 2001

















Dexia/Kempen (May 01) Collin Stewart/NatWest Stockbrokers Private Clients Division (May 01) Cater Allen/Fleming Premier banking (May 01) Old Mutual/Fleming Offshore (May 01) Credit Suisse/General deValores y Cambios (May 01) BoS/Halifax (Proposed May 01) HSBC/Inter.Fin. Agencia deValores y Bolsa (May 01) SocGen/TCW (Apr 01) First Union/Wachovia (Apr 01) Allianz/Dresdner (Apr 01) Lloyds TSB/Abbey National (Proposed Apr 01) AIG/American General (Proposed Apr 01) Rabobank / Harbour Capital Advisers (Mar 01) Morgan Stanley Dean Witter / Quilter (Jan 01)

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“Declared” M&A intentions in wealth management








Deutsche Bank looks for acquisitions in Europe, US. (May 01) Allianz declares its intention to be a bigger force in funds management following its merger with Dresdner Bank (Apr 01) Goldman Sachs announced goal of doubling its AuM to US$1,000bn in the next 5 years (Apr 01). NB. mostly organic but does not rule out acquisitions.




CitiGroup Private Bank goes shopping (5 Apr 01)




Prudential still reported to be shopping in US (Apr 01)

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Why merge or acquire?
















Q: Does it add value? Does it improve client services? A: Sometimes yes, but sometimes no. Investors like buying revenue streams on a diversified basis (geography, product etc). Financial Institutions seek to create (replicate) global business models as markets go global Wealth Management continues to be a very attractive complement to most Financial Institutions. Players want to be present where core wealth resides (namely US, UK, Germany, France, Italy, Spain and Switzerland)

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M&A trends amongst European wealth managers










Pre-1998 (introduction of EMU), with some exceptions notably the Swiss, European wealth management industry M&A activity have been largely in-market focused. Since the introduction of EMU, we observed an increasing trend for European wealth managers to actively look to acquire cross-border. This trend extends beyond other European countries, into other continents, most notably the US.

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Buyers & Targets - geography




EUROPEAN


KEY BUYERS











US


6 CORE COUNTRIES – UK, Germany, France, Italy, Spain and Holland.




International or National players.

Buyers from these 6 countries have shown keenest appetite

KEY TARGETS


KEY BUYERS

Same 6 core markets – the same 6 countries are the most attractive markets and, as such, tend to attract the most attention from European and US buyers.




KEY TARGETS





Those with good US distribution. Specialised product providers e.g. private equity, fund of funds.

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Some Europeans buying in the US



Old Mutual / Fidelity and Guaranty Life Insurance (2001)



Van der Moolen / Stern & Kennedy market-maker (2001)



SocGen / TCW (2001)



BNP Paribas / Banc West (2001)



Amvescap / National Asset Management Co. (2001)



Robeco (Rabobank) / Harbor Capital Advisors (2001)



Allianz / Pimco Advisors Holdings LP (2000)



Allianz / Nicholas-Applegate Capital Mgmt (2000)



UniCredito Italiano SpA / Pioneer Group, Boston (2000)



Credit Suisse / DLJ (2000)



UBS / Paine Webber (2000)

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Tomorrow’s industry look

banks

Value chain

execution

Very few, global players

clients

product

Many highly specialised product providers

distribution

Moderate number of regional, global fronting entities 9

DISTRIBUTION













Confusion over what is being acquired. Definition of segments changing daily - retail, affluent, HNWI, Ultra HNWI, FO's. No “Assets Under Management” or even "Assets under Administration" but rather "Assets under Advice". Concept of Independence (IFAs) and its potential evolution to “TiedAgent;open Finance in its varying forms;what governance? Pure referral networks (e.g. IFAs, promotori) face increasing pressure to become a bank, this will likely lead to somewhat lower valuations of those partially extremely high priced entities.

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Online Players - Europe
















Europe's "Super League" (ComDirect, Consors & DAB) has 34% of European market. Despite doubling the European customer base to over 3.6m customers in 2000, market turbulence has extracted a number of casualties. Shakeout in the e-Broker industry continuing - Valuations dropped in line with sharp decline in most internet based businesses (competitive market, under-utilisation, revised business projections). Prolonged market downturn could keep private investors on the sidelines - tough market conditions ahead. Further consolidations are inevitable.

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Online Brokers - Europe




Recent corporate developments;


American Express/SharePeople




DAB/Selftrade







TD Waterhouse & Charles Schwab jointly acquired Aitkin Campbell (small UK market maker)

Joint Ventures / Alliances



Merill Lynch-HSBC TD Waterhouse/Banque Generale de Luxembourg JV for online brokerage across Europe

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Stock Market impact on M&A




Sharp falls in 1st Q. 2001






Sellers start to hesitate Buyers start to believe that bargain hunting is possible;buyers prefer to buy when prices are high.

Result:


take a longer time for buyer and seller to reach an agreement




fewer deals




stricter conditions

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Trends in pricing




Onshore versus offshore(international)





Europe versus US





European premium over US assets.

Specialist product providers





Continuing premium for onshore business

Premium to reflect rarity value and higher revenues especially for relatively larger players

Discount for commodity product providers

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Winning tactics for buyers




Pricing (comprehensive assessment of "my" value including synergy values.)




Pre-assessment of post acquisition "corporate fit"




Approach / "appeal" to target and staff




People and culture matters




Awareness of other bidders strengths and weaknesses




Experienced M&A team




Integration considerations

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Winning tactics for sellers




"Targeting" the right buyer.




Optimum value extraction.




Keeping operational focus during transaction (Value preservation).




Experienced M&A team.




Culture and people matters.




Auction vs. bilateral.




Exclusive vs. parallel negotiations.

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CONCLUSION

M&A remains an important option for shareholder value optimisation Ray Soudah Founder MilleniumAssociates AG Industriestrasse 7 6301 Zug Phone: +41 41 720 47 47 Switzerland Fax: +41 41 720 47 48 Email: Website:

[email protected] www.milleniumassociates.com

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