Partnerships favoured over sales since tax change
IFAs are more likely to seek strategic partnerships with larger firms after a change to corporation tax relief in the 8 July Budget, the managing partner of Harrison Spence has said.
Currently, one in three Ifas approaching the retail financial services consultancy are seeking strategic partnerships with larger firms. Just five years ago this applied to just one in 20, with the remainder opting for the mergers and acquisitions route.
Brian Spence, managing partner at Harrison Spence, said the Summer Budget changes meant there was now no benefit to a purchaser in buying assets and goodwill as the cost would no longer be written off.
He said this was unlikely to encourage more equity purchases as the rationale for most asset purchases was not the tax benefit but to ensure the buyer did not take on the liability of the previous advice.
Mr Spence said: “IFAs who wish to continue working for another five to 10 years – and who see significant growth potential in their business – increasingly regard a long-term, mutually beneficial partnership with a potential future acquirer as an attractive route.
“The advice industry is entering its next phase of evolution and so too are the terms of reference for these relationships.”
He said he believed there would be “particularly interesting deals on the table” for those who have been quietly acquiring assets over the past decade and now want to take their business to the next level.
At the end of July, figures from IMAS corporate finance revealed the number of deals involving IFA businesses had remained steady, especially at the higher end, which was averaging one deal a quarter between £5m to £25m in size, from Q3 2014 to Q2 2015.
Fred Hansson, partner at IMAS, said, “Of course, over the period the regulatory environment has become more stringent. Also, arguably, it is more difficult to grow your business, particularly because it may be facing higher overhead costs. So, the logistic benefits of partnerships with larger organisations could be considerable.”
Adviser View
Steven Pyne, a partner at London-based Ifas Holden & Partners, said: “The significant increase in mergers and acquisitions involving Ifa businesses in recent years was largely driven by rising markets.
“But there is now a strong move towards firms building for the longer term and growing organically, rather than seeking a buyer or partnership. I am not particularly aware of many searching for strategic partnerships.”
