Results from recent surveys of senior executives in the private banking/wealth management industry indicate that the sector is likely to undergo further consolidation. Recent research done by both PricewaterhouseCoopers and KPMG International point to an anticipated increase in M&A activity in all regions of the world over the next few years. In fact, according to KPMG's survey, 91% of respondents plan to make an acquisition between now and 2008. Global M&A activity in private banking and wealth management jumped 26% last year, according to KPMG's study. Driving forces behind industry deals are intense competition for clients and desires to gain product capabilities, achieve economies of scale in existing markets, and expand into new locales. Given the highly fragmented nature of the wealth management sector, dealmaking has been slower than previously anticipated, notes Bruce Weatherill, global leader of the private banking/wealth management practice at PricewaterhouseCoopers in London. Internal development historically has been the preferred growth route for wealth management firms, although he points out that survey participants indicated that a larger proportion of their company's future growth will come from mergers and acquisitions. Winning new clients will be a top priority for wealth managers in meeting growth targets, he adds. "Most private banks appreciate the fact that gaining private clients is quite difficult. A number of them are targeting the ultra high net worth clients, those with $50 million or more in assets, and high net worth clients, those with $5 million plus in assets, and those sorts of families change advisers only once in a generation, maybe once every two generations. While organic growth is still preferred by many organizations, you are looking at a very, very long-term scenario and, therefore, you have to grow via acquisition." As the industry has evolved, investors have been demanding more-tailored personal service, Weatherill says. They are also typically less loyal. They want lots of investment choices, and they will take their money to another wealth manager if they perceive greater value elsewhere. "Breaking the relationships between old money' clients and their asset managers can be done by offering customers a better value proposition than your competitors. With new money', it's sometimes easier to make that proposition." Although key differentiators among wealth management firms will include high levels of service and quality customer relationship managers (CRMs), Weatherill cautions that gaining quality staff via an acquisition is a "strategy fraught with difficulties." "You don't want to take on a whole company just for the talent. You have to make sure that you have back-office synergies or that you can gain entry into new areas, for example. You'll see in a number of acquisitions in the industry that buyers are trying to gain quality customer relationship managers and cut costs out by bringing them onto their own platform. That's a good way of buying talent." (c) 2005 Mergers and Acquisitions Journal and SourceMedia, Inc. All Rights Reserved. http://www.majournal.com http://www.sourcemedia.com