THE CHANGING PACE OF M&A ACTIVITY

Headlines:

1. The wealth management industry is experiencing increased M&A activity driven by market fragmentation, private equity interest, and regulatory changes like the Consumer Duty
2. Cultural alignment and client proposition fit are critical for successful deal execution and post-deal integration
3. Private equity's role continues to expand, with trends like "consolidation of consolidators" reshaping the landscape
4. The regulator is scrutinising the motivations and client impacts of M&A deals, urging firms to prioritise transparency and client outcomes
5. Challenges in due diligence, post-deal integration, and client retention underscore the complexity of M&A in this sector

 

Discussion:

Market context and drivers of M&A activity
The fragmented nature and significant activity was highlighted, with discussion on the following key drivers:

• Market entry strategies to expand geographic reach or service propositions
• The need for investment and transformation, especially among smaller firms
• Private equity's influence, with 41 firms currently owned by PE investors, and emerging trends like "consolidation of consolidators"
• Regulatory changes like Consumer Duty reshaping how firms approach M&A to ensure client-centric outcomes

Pre-deal considerations
The pre-deal phase presents challenges in valuation, deal structuring, and due diligence.

• Pricing is often based on EBIT multiples, with deal structures varying between entity and asset purchases
• Cultural alignment is paramount, as mismatched cultures can derail integration efforts
• Increasing regulatory scrutiny has heightened the importance of due diligence, with an emphasis on client journey alignment and operational readiness

Post-deal integration challenges
post-deal success hinges on careful planning and execution:

• Clear and early communication with staff and clients about changes is essential to build trust and manage expectations
• Aligning target operating models and managing client journeys effectively helps ensure seamless transitions
• Realising operational synergies remains challenging, with many deals failing to deliver anticipated value due to poor integration planning

Client impact and retention
Delegates emphasised the need to focus on client outcomes throughout the M&A process. Client retention rates post-deal vary, often depending on factors such as:

• Communication strategies
• Proposition alignment to meet client expectations
• Operational execution to avoid service disruption

Regulatory concerns and future trends
The regulator’s growing interest in M&A motivations underscores the need for transparency and client-centric strategies. Future trends discussed included:

• Challenges faced by smaller firms amid increasing regulatory and operational pressures
• The potential emergence of technology-driven market entrants, reshaping competitive dynamics in the sector

 

Key takeaways:

• Cultural alignment is critical to both pre- and post-deal success. Firms should prioritise compatibility during the due diligence phase
• Client outcomes must remain a central focus, with changes communicated clearly and designed to enhance value and satisfaction
• Thorough due diligence is essential to navigate increasing regulatory scrutiny and ensure operational readiness
• Effective integration planning is vital to realising synergies, minimising disruptions, and retaining clients
• Stay attuned to market trends, including private equity activity and the potential rise of tech-driven entrants, to position for long-term success