As we headed into the RDR last year, a few firms seemed especially gung-ho and there was a general aura in the industry of consolidation and renewal.
But when you take a look at some of the most ambitious predictions and see how they panned out, it becomes clear that several did not quite live up to expectations. In short: we wrote far less about deals being done than about firms claiming to be doing them.
Towry is a good example. In April the ever-ballsy Andrew Fisher said Towry was in talks with some 85 firms. Looking back since then there certainly haven’t been 85 acquisitions, but I suppose realistically we would never have expected that.
Towry’s most publicised buy was that of Axa’s Bluefin Personal Consulting, after dropping some heavy hints to FTAdviser.
According to David Middleton, head of Towry’s client proposition, the company bought five firms last year including Bluefin, Glasgow-based Norscot Financial Services, Cardiff-based Martin Briggs, Aberdeenshire-based Conclusion Financial Planning and Bristol’s Deverill Black & Company.
Mr Middleton said the firm applies a “rigorous” approach to acquisitions that it had decided not to pursue a number of targets typically because it did not think it could “add value to the client base”, the price was too high or the company carried with it heavy liabilities from past sales.
He added that the firm is still looking for acquisitions and in talks with “a number” of firms.
In another case an adviser firm which had predicted at the beginning of last year it would quadpuple its adviser numbers and buy around 20 firms has, by its own admission, fallen “far short” of target,and hadn’t even got off the ground until three months after it very publicly stated its goal.
The firm told me integration was the stumbling block here - and I imagine elsewhere. A first wave of firms were bought and then the integration process took much, much longer and was much more fraught than anybody had anticipated.
Now keep in mind that just because a firm says it will acquire a certain number of other companies and then fails to meet that target, it doesn’t mean that company has done anything wrong. If anything, they are guilty of optimism and maybe hubris.
Interesting in this light is Succession, which said in September 2013 it would acquire six firms by the end of the year, and later announced the acquisition of Clay Rogers, which was not listed among those six.
When I spoke to Simon Chamberlain today, he said that not only had the firm ended up acquiring those anticipated six firms, but is also on the verge of acquiring three more, imminently surpassing its own firm-a-month goal.
Succession is instructive here because it acquires firms in two stages: first it buys a minority stake and sets out a list of expectations. When and if a firm meets those expectations it increases its ownership to a majority stake.
Specifically it buys a 15 per cent stake in a firm and agrees to acquire a majority shareholding once the advice firm can check the 21 boxes on Succession’s list, which includes making it compatible with the rest of the would-be owner.
Mr Chamberlain said: “The easy thing is buying the companies. The hard thing is to get them to do the consolidation process after they received their cash. They aren’t motivated anymore because they have got their money.”
Maybe Mr Chamberlain is on to something here. Get the hard part done first, and keep the carrot just that much further out of reach until the firm you want to acquire has got its ducks in a line that will match your own.
