The current global wealth-management merger-and-acquisition (M&A) cycle dates back to the period following the Great Financial Crisis. It entered a kind of second gear about a decade later, as private equity players entered the sector.
The deal flow dried up during the pandemic and the rise in interest rates that followed, but then came roaring back in 2024. This third gear is a race for scale, succession planning solutions and specialized capabilities as the great wealth transfer upends long-standing client relationships.
But there is another reason Canadian wealth managers enter into deals. For many, it is a matter of survival. Among the some 400 firms across the country, there is a group of small shops unable to break through the $100 million in assets-under-management (AUM) ceiling. They have been forced to make deals because of insufficient capital, spiralling costs and weak distribution.
If you are not growing, you are almost certainly shrinking.
Private equity firms are buying professional services businesses in multiple industries — dental, accounting and legal among them. The profitable ones are earning healthy multiples.
Wealth managers are no different. In the past, banks and insurance companies bought up the wealth management competition. Their track record for making good acquisitions has been mixed.
Investors have grown wary of proprietary product and cross-selling practices. Many clients have headed for the exits after learning their wealth manager has joined a Bay Street institution.
Private equity firms are a better fit. The criticism that they view wealth management acquisitions as quick-flip opportunities is largely unfounded. They view profitable firms as mid- to long-term holds that can add valuable scale and profitability.
They let firm executives run their business. Most allow for the preservation of a firm’s brand and culture. And of course, they bring both money and expertise to the table. Many, for example, offer institutional-grade alternative investments.
Their interest in Canada’s wealth management industry is a welcome development for many high-net-worth clients who were unhappy about so much of the industry falling under the ownership of banks and large insurance companies.
Our domestic industry is part of a global business that is attracting private equity giants and global wealth-management consolidators. The deals they’re signing create a virtuous cycle that attracts talent, investors and clients. Business owners looking for an exit can benefit greatly.
Wealth managers with a strong narrative, investment philosophy and strategy, product differentiation, brand, asset growth and profitability are the true drivers of growth in this market, and they have the private equity firms’ attention.
Newport and Harbourfront
Firms tend to favour partial buy-outs, allowing original partners to continue managing the business without external involvement. Newport Private Wealth Inc. and Harbourfront Wealth Group exemplify this model.
Madison Dearborn Partners acquired Wealthspire, Newport’s parent company. The deal closed Oct. 30.
Stephen Hafner, managing director at Newport, said the transaction was a natural fit because it retained the capital and preserved the original team owners and culture.
Three years earlier, Audax Private Equity made a nine-figure investment in Harbourfront that valued the firm at $425 million. It was a milestone deal at the time.
Last week, Harbourfront announced its acquisition of Cumberland Private Wealth, a deal that will add about $5 billion in AUM should it close as expected in the third quarter.
Danny Popescu, Harbourfront’s chairman, said the deal offered a “strong cultural fit.”
Thirteen years after starting his business with about $300 million in AUM, Popescu has built it into a $22 billion behemoth.
Both Newport and Harbourfront were acquired by larger wealth management businesses. In both cases, private equity firms invested in them for all the right reasons. They added scale, without disrupting successful management teams and the culture they’ve established.
Meanwhile, the acquiring firms’ premium brand reputations provided assurance and continuity to employees, shareholders and clients alike.
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