Expert: Anthony Turner, Corporate M&A Partner, Farrer & Co LLP Facilitator: Sharmil Patwa
Headlines:
- M&A activity has slowed down significantly in the past year due to factors like inflation, higher borrowing costs, lower valuations, geopolitical concerns, and recession fears
- Valuations were extremely high during the covid boom but have now come down, leading to a disconnect between buyer and seller expectations
- Buyers are more cautious and negotiating harder, resulting in longer and more protracted deal processes
Discussion
As well as discussing the current M&A trends and valuations, including the slowdown in M&A activity due to economic factors like inflation and recession concerns, the disconnect between buyer and seller valuation expectations, the importance of technology integration and data management during acquisitions, and the potential disruption from big tech players entering the wealth management space, delegates also debated the merits of ad valorem pricing models, the role of human advisers versus robo-advisers, and the need for better financial education, especially among younger generations.
Underlying drivers for M&A in wealth management
Despite the slowdown, the underlying demographics for the wealth management sector remain strong. Factors for this include an aging population, increasing wealth at different levels, the need for better investment advice and management, the growing regulatory burden, and price pressures as drivers for M&A activity.
Additionally, the shift in client demand, particularly after COVID-19, and the need for differentiation and access to new markets and products are also driving consolidation.
Technology integration and data management challenges
The discussion turned to the challenges of technology integration and data management during M&A transactions. Participants highlighted the difficulties in merging different systems, data structures, and processes, which can lead to significant value destruction if not handled properly. The importance of understanding the underlying data quality and structures was emphasized, as well as the need for proper training and education on new technologies. The role of fintech companies and the potential for big tech players like Apple to disrupt the wealth management space was also discussed.
Pricing models and client impact
The merits of ad valorem pricing models, where clients pay a percentage of their assets under management was debated, with some arguing that this model is outdated and unfair, as clients with larger portfolios pay disproportionately more for the same services. Alternative pricing models, such as time-based or fixed fees, were then discussed as potential solutions. The impact of M&A on clients was also explored, with concerns raised about potential product pushing, fee increases, and disruptions in service quality during integration periods.
The role of technology and financial education
The discussion then shifted to the role of technology in improving financial education and engagement, particularly among younger generations. Delegated highlight the need for better financial literacy and the potential for technology to make investing and financial planning more accessible and engaging. The cultural differences between the UK and US in terms of individual investor appetite and the adoption of robo-advisers were also discussed.
Key takeaways:
- Carefully evaluate the underlying data quality and structures during M&A due diligence processes to mitigate potential value destruction
- Explore alternative pricing models beyond ad valorem to address fairness concerns and better align with the services provided
- Develop strategies to improve financial education and engagement, particularly among younger generations, leveraging technology and innovative approaches
- Monitor the potential entry of big tech players into the wealth management space and assess the competitive landscape
- Ensure proper training and education for advisors and clients during technology integration processes to minimize disruptions and maintain service quality
