Buoyed by increased capital — and increased optimism — the banks, trust companies, wealth management firms and bank brokerages that can safely instigate mergers and acquisitions are starting to do just that.
"If you can be bold, you can make acquisitions now," Alois Pirker, research director at Aite Group, said in an interview last week. "If you're weak to start out, it will be hard to expand."
Sola Akinola, research manager, Americas at mergermarket, said M&A values have risen steadily in the U.S. financial services sector since the second quarter of 2009. Year over year, the current quarter is up 34% by value and 21% by volume of deals.
Meanwhile, there has been a slew of M&A and initial public offering announcements. Envestnet, a company that provides Web-based services for financial advisers, filed for an IPO of stock worth up to $100 million last month. And in February, Bank of New York Mellon Corp. announced a $2.31 billion deal to acquire back-office operations of PNC Financial Services Group Inc.
Last week, Citigroup spun off Primerica in a $320.4 million IPO of approximately 21.4 million shares of Primerica common stock for $15 per share. And in September Royal Bank of Canada announced a deal to acquire JPMorgan Chase's registered investment adviser servicing business, which will allow RBC to gain significant traction in the market.
"We definitely see that the capital markets are getting better," Pirker said. "There is money available for initial public offerings, and firms have more of an appetite for moving into new markets, because there is more opportunity right now to grow their strategic footprint."
At the same time, structures are changing. When Broadridge Financial Solutions Inc.'s sale of its Ridge business to Penson Financial Services Inc. closes, Penson will be the nation's second-largest clearing firm. "The units that are changing hands right now are really redefining the landscape as we knew it before the crisis," Pirker said. "The time of sitting on the sidelines and watching where the crisis is going is over."
Dan Seivert, the founder of Echelon Partners, says that with the Dow Jones industrial average close to 11,000, the deals should continue to flow. "Buyer interest is picking up, and the buyers are seeing that if the markets continue to go up that will push up valuations, and they want to make their acquisitions before the market goes up too much," Seivert said.
Pirker said one reason for the shift in the wealth management space is that the larger firms like Bank of America and Wells Fargo are expanding into what is being called the universal banking model, which encompasses both the retail banking and retail brokerage space. If firms are successful at cross-selling between the bank and brokerage side, that creates considerable pressure for the bank-only players and brokerage-only players to change with the times, Pirker said. "The evolving market has pushed a lot of firms to ask: 'What does this mean for me? And do I have to buy a wealth management unit?' This obviously generates a lot of activity."
Chip Roame, managing principal at Tiburon Strategic Advisors, said at the recent American Bankers Association conference in Phoenix that now is a good time for banks to buy midsize RIA firms, those with $200 million to $1 billion of assets under management.
Roame said that principals at RIA firms are getting closer to retirement age and that larger RIAs have fewer exit opportunities, since their firms are worth too much for their employees to purchase.
"This leaves retail banks to purchase the firms, seek to retain the principals for a short time to transition clients, pay out a fair price if clients are retained, and seek over time to cross-sell those clients banking products to boost margins and make the transitions profitable."
For those interested in the next big M&A moves, Pirker says to keep an eye on Barclays, which aims to make a retail banking acquisition in the United States or elsewhere. With the acquisition of Lehman Brothers Holdings' U.S. operations, it is likely Barclays will look to gain a foothold in the wealth management space as well, Pirker said.
Meanwhile, Canadian banks, having fared well in the crisis, are well capitalized and are always eyeing opportunities in neighboring markets. With the Canadian dollar strong, Pirker expects to see more M&A activity out of Canada.
Another to watch for: HSBC, which also made it through the crisis in one piece, though it got hit in the U.S. a bit. Pirker says HSBC is looking to grow in the U.S.
