Asset & Wealth Management M&A

Despite an overall slow-down in mergers & acquisitions (M&A) transactions over last couple of years, M&A in the wider Asset and Wealth Management (A&WM) sector continue to be relatively resilient.

Key drivers like fee pressures and outflows of investments, achieving scale-based synergies, tapping into new geographies and asset classes, achieving differentiation through digitization and technology (including generative AI), ever-changing and expanding regulatory regimes (such as focus on market discipline, outcomes for customers and ESG) are all contributing to deal making in this sector. The A&WM sector also uniquely attracts both strategic and financial sponsor dealmakers. While corporate buyers look to strategic consolidations, the addition of new capabilities/offerings and vertical integration, private equity and financial sponsors continue to back this sector through buy-and-build or buy-and-improve strategies (particularly on the wealth management side) with an aim to achieve effective exits.

Given the trend of downward organic revenue growth and generally lower margins within the A&WM sector and given the increasing shift towards consumer centric strategies and delivering value for clients through technology/AI, M&A in the A&WM Sector is expected to remain buoyant as we head into 2025.

Deal issues – M&A transactions in the A&WM sector often involve complicated negotiations due to the industry's unique business structures and in most cases, regulated nature. Some of the key issues/themes we regularly see include:

Diligence and structuring: Pre-exchange due diligence on key financial, corporate and commercial parameters, compliance, and fund management structures is key to successful outcomes. Due to the involvement of a wide variety of different legal entity types in structures (such as LLPs, fund vehicles, corporate entities and partnerships, investment/portfolio vehicles) and complex incentive, profit-sharing and (sometimes) capital structures, structuring of M&A transactions in this area tends to be quite complex.
 
Value protection: Valuing asset & wealth management businesses is often complicated and results in large deltas between offers and expectations. Bridging these gaps often requires use of effective valuation protection structures such as earn-outs, stake purchases (with path to exit on achieving specific outcomes), purchase price adjustments etc. These often require intense negotiations and an interaction of financial, accounting and legal workstreams.

Regulatory or client approvals and need to protect value of businesses in the interim and post completion period: In most cases, approvals and clearances from FS regulators are likely to be required before completion of a sale or significant investment. Depending upon the jurisdiction and the nature of the underlying client documentation, client/LP approvals may also be needed on change of control of managers. In some cases, M&A transactions in the A&WM sector may also require antitrust and/or foreign investment approvals. As explained in our M&A report, a far wider range of transactions are being subject to regulatory review, which can have a significant impact on deal timelines (download our 2024 M&A report here: Navigating a complex global regulatory environment to deliver successful transactions - Increased regulation and the impact on M&A). This can result in a gap between signing and completion, which will require careful consideration for value loss and often leads to negotiations on interim covenants and termination rights. Further, post-completion client notifications/communications require careful planning and execution in accordance with T&Cs and regulations.  With the right approach and advice, you can navigate regulatory hurdles, mitigate risk and get deals done. 

Regulatory issues: The sector continues to be shaped by regulatory changes and pressures. While this contributes to consolidation activity, the regulatory environment sometimes makes execution and risk management particularly difficult. For example, consumer duty implementation and related issues continue to influence M&A within the wealth management sector. Regulatory capital considerations can also have significant impact on deal structure and consideration, where relevant.

Risk management: Transactions within this space often include a robust set of warranties in respect of key matters such as financial parameters, governance, AuM, risk and compliance, fund structures, corporate matters, HR and disputes. We also see indemnities on known and theme-based issues (such as mis-advice/mis-selling in wealth management deals, known regulatory breaches etc.). Often key management from the target are involved in standing behind these warranties, which makes it difficult for buyers to balance seeking recovery and managing key personnel morale following transfer. We are therefore seeing an increasing use of W&I insurance which continues to make significant developments in this area.

Consumer Duty: In covering all aspects of a firm’s relationship with its customer, including specifically the pricing and value of products, Consumer Duty has the potential to materially affect a firm’s performance, especially when compared with their historic performance, and is a key factor to consider when assessing deals in the sector.

Post closing retention, incentivisation and governance: There is often heavy negotiations on post-completion governance and incentivisation structures to: (a) ensure key personnel are retained and offered independence while achieving effective integration and cultural alignments; and (b) allowing regulators, clients, LPs and owners mutually favourable outcomes which could be crucial to the execution and success of the deal.

Sector Experience

At Eversheds Sutherland, we have a dedicated (and market leading) team of Financial Services mergers and acquisitions (FS M&A) lawyers who focus, and regularly advise, on transactions within the A&WM Sector.

Working alongside an interdisciplinary team of specialist lawyers from across our global network of offices including regulatory, compliance, tax, HR (including employee incentives), data protection, commercial and technology, insurance, intellectual property and real estate specialists, our FS M&A team understands the uniqueness of businesses within the A&WM Sector, the various opportunities and threats these businesses face and the interaction with the ever-changing regulatory regimes to which businesses in the sector are subject. Often these factors make execution of M&A in this sector challenging, and we have strong experience of assisting our clients with navigating these challenges first hand.