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Urgent: Acquisition of a private wealth management firm case study

Mergers&Acquisitions wealthmanagement
Recent activity on Feb 14, 2019
2 Answers
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Anonymous A asked on Feb 14, 2019

Hi guys,

I am looking for a bit of urgent advice (not a solution).

I have to work on an acquisition case study. The acquisition is of a local private wealth management firm in a niche sector by a global financial services firm. The Asset under management (AUM) is known. That's all I have as part of my case study (no other information). I can't ask because it is a written one.

The task is to evaluate industry outlook, valuation of the firm to be acquired and an approach to integrate the firms.

My concern is I have already spent good 5-6 hours on googling but I neither found any wealth management industry report.

Also, I don't have access to Bloomberg or capital IQ, so I don't even know the valuation multiples to do the valuation of the firm. Since the firm is private, so their financial statements are also not available. I am exhausted and wondering if I am moving in the wrong direction.

Where can I find such specific industry outlook reports and valuation multiples?

Or if I am moving in the wrong direction, could you please help me steer in the right direction? Maybe the valuation is to be done through some other method?

Thanks in anticipation.

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replied on Feb 14, 2019
McKinsey Senior EM & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 350+ candidates secure MBB offers

Hi Anonymous,

have a look at the yearly released Global Wealth Report by BCG. It contains industry outlook, margins, geographical profiles, asset classes, etc. Here is the link to the 2018 report:

Moreover there are older reports from 2017, 2016 etc. In addition to that there are similar reports available from Credit Suisse:

Good luck! Sidi

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Ish on Feb 14, 2019

I agree with Sid. But I am curious about the valuation part. Last year, I received a similar case about valuation of a wealth management company, but didn't quite get that. I will wait for experienced consultants' guidance on that. What are your thoughts, Sid?


Sidi on Feb 14, 2019

Please see my second answer in this thread!

replied on Feb 14, 2019
McKinsey Senior EM & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 350+ candidates secure MBB offers

Expanding my previous answer to cover the valuation aspect:

Valuation of a cash-generating asset (and from an investor's perspective, a company is a cash-generating asset) can be done by assessing how much return this asset generates over time until the investor's investment horizon. This time horizon means: "By when does will the investment be recouped?". It is expressed as a P/E-multiple (Price/Earnings-multiple). These multiples are industry-specific, but mostly lie between 7 and 15. So let's assume a P/E multiple of 10. This means, the value of the wealth menagement firm is 10x its yearly earnings (profits).

How to calculate earnigns and value of a wealth manager?

1. Understand the earnings model! Wealth Managers invest their clients' cash (Assets under Management - AuM) to generate a return, and they earn a certain share of the increase in value. Let's assume they get 20% of the increase in AuM value, and their own operating costs are 2% of AuM.

2. Let's assume that, on average, the wealth manager generates 8% year-on-year return on the AuM

3. Since we know AuM (let's assume 1 billion USD), we can now calculate the earnings = revenue - cost = [1 billion * 8%*20%] - [1 billion * 1%] = USD 16M - USD 10M = USD 6M yearly profit

4. The value of the wealth management firm is equal to earnings*P/E-multiple; hence USD 6m * 10 = USD 60m

Hope this helps!

Cheers, Sidi

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