Wilmington Trust's CEO Takes Wait-and-See M&A Approach
July 27, 2009
For anyone in a rush to snap up wealth management firms, or who thinks Wilmington Trust Corp. is poised for a buying spree, Ted T. Cecala says think again.
The chairman and chief executive officer of Wilmington Trust strikes the profile of a lion in wait. He advises caution and talks up the risks of chasing deals in the current market, but he says the company will expand -- in time.
Though the buzz in the industry is of banking companies rushing to divest wealth businesses and small asset managers available for good prices, Cecala said "the right deals aren't out there right now" for Wilmington Trust.
"You have to consider things like client attrition and defection of advisers that you just paid a lot of money for before you make a deal," he said in an interview. "If you just wanted to buy any firm, there'd be a list to look at every day, but when you narrow the criteria, you also narrow the opportunity. There are opportunities. They just aren't the right opportunities."
In fact, the Delaware company has not made a wealth management deal since 2007. Analysts predict Wilmington Trust will start buying again sooner rather than later, but agree the more selective approach is prudent.
Robert C. Rutschow, an analyst with Calyon Securities who covers Wilmington Trust, said many of the firms in play are not the right fit for Wilmington Trust.
"When you look at the size of the businesses that other banks are divesting, they are too big," Rutschow said. "And, when you consider boutique firms, it is tough to get assurances about keeping customers and advisers. In this environment it is tough to find a firm that meets all your requirements."
Cecala said some firms are not interested in selling right now because "prices are depressed."
"No one wants to sell at the bottom of the market," he said. "There are a lot of reasons things aren't coming to the surface right now."
Gerard Cassidy, an analyst with RBC Capital Markets who covers Wilmington Trust, said buyers want a bargain and "no one wants to sell at fire-sale prices. The sellers today are distressed sellers," Cassidy said. "Most quality asset managers are going to try to wait till things turn around."
For the past decade, Wilmington Trust, which had $42.9 billion of assets under management as of March 31, has been developing a national wealth advisory platform by buying investment managers in large metropolitan areas to complement its commercial banking and wealth businesses in the Middle Atlantic region.
Wilmington Trust, which aims its wealth management services at ultrawealthy individuals with more than $10 million of assets under management, ventured into Florida about 25 years ago and since 1997 has opened offices in Pennsylvania, California, New York, Georgia and Maryland.
In 2002, it bought Balentine & Co., an Atlanta investment counseling firm, and two years later it established itself in California with its acquisition of Grant Tani Barash & Altman LLC, a Beverly Hills wealth manager.
Eventually, Cecala said Wilmington Trust plans to make acquisitions to enter Chicago, Minneapolis, Northern California and Dallas/Fort Worth. "We have a few holes in the footprint," he said. "We want to expand. By acquiring a book of business with a good group of referrals, we can build a strong foothold in a region."
Making a deal takes a lot of time and careful consideration, Cecala said. For example, he said Wilmington Trust spent five or six years considering deals before it bought Bingham Legg Advisers LLC of Boston in 2007.
Cecala said Wilmington Trust has been looking for a wealth manager in the Midwest for five or six years and "got pretty close to the altar but things didn't work" a couple of times.
Rutschow said he thinks "shareholders would frown" on any banking company that made an acquisition with credit quality still an issue for the industry. "I think generally for all banks, capital is king right now. It is a very precious commodity," he said. "Using it on deals is not the most prudent move at this point considering the overall environment. Wilmington can say it can't find the right deal, but I think what they are doing has more to do with being prudent."
Cassidy said Wilmington Trust is well capitalized and could acquire now, but it needs to "look long and hard at any deals. There are some early signs that things are bottoming, but if the floor falls out in October, going out and buying someone today might not be best for Wilmington and waiting certainly won't hurt them," Cassidy said.
"They are positioned to continue to grow their wealth management business organically and through acquisitions over the next five years. There is no reason to rush and do anything right now," he added.
Cecala said Wilmington Trust's wealth business continues to perform relatively well. During the first six months of this year, new client growth outpaced growth from a year earlier by 50%.
Wilmington Trust hopes its wealth business can develop share in its current markets over the next five years, Cecala said, but it is still hard to predict when the next deal will come. "You will find the right fit eventually if you are willing to be patient," he said. "You can waste a lot of money just buying somebody."
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