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Price tags come down on wealth industry takeovers

Tuesday, 2 Oct 2012 | 7:01 PM ET

By Chris Vellacott

LONDON, Oct 3 (Reuters) - The price paid by wealth managers to buy up assets from rivals has halved in the last two years, showing that in a rush to buy market share, buyers can drive harder bargains, research has found.

A report by specialist consultancy Scorpio Partnership published on Wednesday shows that during 2011 and 2012, wealth management companies spent $9.42 billion on rich investors' assets or investment managers that run wealthy clients' money.

This represents $635 billion run on behalf of wealthy investors, or 4 percent of the total amount managed by the global wealth industry, Scorpio said.

The boom in demand to buy up wealth management businesses followed the 2008-2009 financial crisis, when many financial institutions looked to this sector as a source of steady revenue to offset more volatile areas, driving up their price tags.

But the going rate for buying wealth management assets stands at around 2 percent of the funds, having halved since Scorpio's previous report in 2010, according to the research.

Seb Dovey, Scorpio's managing partner said valuations are now falling further and the most recent deals have been valued at around 1.5 percent of assets.

"The business of buying rich assets is getting cheaper, or at least becoming more realistic. Paying 4 percent of assets is just bonkers," Dovey told Reuters, noting that assets change hands between institutional asset management firms for closer to 1 percent.

In August, Swiss bank Julius Baer said it had agreed to acquire Bank of America's Merrill Lynch wealth management business outside the United States for 860 million Swiss francs, or 1.2 percent of 72 billion francs of assets.

Dovey said the headline valuation in Scorpio's research for wealth assets would be even lower if the average was not boosted by strong demand for funds in emerging markets such as Asia where wealth management companies are seeking to expand by acquisition.

Continental Europe, including private banking hub Switzerland, accounted for much of the deal volumes, Scorpio said, representing $337.9 billion of assets coming under new ownership.

Britain was also a centre of activity - with $80 billion of assets changing hands ahead of new regulations covering how financial products are sold that promise to squeeze profits for smaller investment managers.

Asian deals amounted to $102.5 billion changing ownership. (Editing by Jane Merriman)

((chris.vellacott@thomsonreuters.com)(+44)(0)(20

75423987)(Reuters Messaging: chris.vellacott.thomsonreuters.com@reuters.net))

Keywords: FINANCIAL FUNDS/M&A