Wealth and asset management companies plan to use mergers and acquisitions (M&A) in both scale and scope this year to seize opportunities as the sector anticipates growth opportunities worth US$250 billion by 2030, a recent study found.
The "M&A Practitioners' 2023 Outlook Survey" by Bain & Company found M&A activity in wealth and asset management business continues to persist this year, but will likely look different considering the market downturn.
In 2021, global M&A activity set a 10-year record for this business sector, reaching $77 billion in terms of deal value.
Last year, deal value was projected to decline by 42% to $37 billion based on lower average values.
The share of deal value in wealth and asset management in Asia-Pacific increased from 19% in 2020 and 46% in 2021 to reach 58% last year, despite deal volume holding steady at around 30%.
Bain expects scale M&As to play a significant role in shaping the wealth and asset management business as the largest players will outpace the market and offer differentiated services through investment in digital and analytical capabilities.
Asset managers will also rely on scale deals to establish ecosystems and platforms in a changing sector, noted the report.
"We expect the strongest companies to capitalise on attractive scale investment opportunities as the downturn further increases the gap between winners and losers," according to Bain.
The company anticipates fewer large deals for scale M&As in the short term, with smaller scope deals defining 2023. This trend was established during mid-2022 as interest rates surged, making deals valued at greater than $1 billion more expensive.
Players in this sector will be looking for targets that can help them grow in other ways from scale acquisitions, said Bain.
Scope deals that offer digital capabilities, expand offerings and ecosystems, and continue vertical integration will see increasing demand from wealth and asset management firms, according to the report.
"Wealth and asset management companies hoping to capture both near- and long-term future opportunities need to pursue an M&A pipeline, screening for both the scope deals that will help them differentiate their business and the scale deals that will help them become industry leaders," Bain said.