AFH Financial’s recent acquisition of Cornwall-based financial planning business Knight O’Bryne shows a trend that I expect to continue, with the opportunity to acquire and to be acquired gaining momentum.
In a trading update, the firm said it is ramping up its acquisition strategy and targeting expansion into London and the south-east, after making six acquisitions in the past 12 months.
The company is also raising finance itself - an accessible route as a listed company. Here at Retiring IFA, we have launched an option for buyers to access finance for a particular acquisitions, in response to demand.
While the numbers of sole traders registering to be sold has been dropping off, we think this may reflect the rush of consolidation following RDR, which to some extent has calmed down now.
Regulatory pressures, such as rising capital adequacy requirements, FCA fees and the impending sunset clause, put a further strain on smaller adviser businesses and will cause some of them to look to realise some of the value of their business and function more efficiently.
So the time for the consolidator to flourish is now, as there are opportunities to acquire businesses to expand their adviser assets and client base. This is reflected in our experience, with more enquiries from consolidators looking to acquire this year in comparison to last year.
So what is a consolidator looking for? In general terms, they are usually seeking to defer part of the payment to a later date, and for a firm that will uplift their funds under advice and which can be moved or migrated.
Here are four key points you should ensure you can make your business attractive, and make sure a buyer is a good fit for your clients:
1. Recurring income is key.
Evidence of sticky goodwill with a high level of recurring income, and showing where your income comes from, is essential to prove value, as is the ability to show client segmentation in providing a full picture of your firm.
2. Show you are ‘systematised’.
Another key attribute consolidators look for is a ‘systemised’ business, with good IT systems and portable data to ensure an efficient handover, allowing the full value of the acquisition to be realised.
3. Consider the post-acquisition picture.
It is important for the adviser firm to consider what the post-acquisition picture will look like, with all the details to assist a particular consolidators consider whether their proposition is right.
4. Make sure the business fits.
One consolidator may not match with a particular adviser, but another will. It comes down to considering where the consolidator wants or needs to realise value, is it one of the strengths of your business?
The consolidator needs to be able to offer the service that clients are used to and the proposition must fit with your business. Otherwise, the acquisition will not work in the long-term, because clients will leave.
Steve Hagues is the founder of Retiring IFA