Fairstone’s chief executive officer Lee Hartley has said the firm is eyeing deals of a larger nature and was in talks with three firms in the discretionary funds management space.
Over the past year, Fairstone has made a number of acquisitions but the Fairstone boss said it was now looking further.
Speaking to FTAdviser, Hartley said: “We have our own DFM offering and we have an investment framework, which has a suite of portfolio solutions, some which are entirely proprietary, some which we run in partnership with other fund managers on a segregated mandate.
“We’ve got approximately £1.25bn in our DFM business today. What we're looking at doing is seeing if we can start by acquiring smaller, good quality DFM businesses in broadly the same way as we acquire advisory businesses and then using that to further scale up our own in-house assets to a far greater degree.”
He added: “We have a lot of financial firepower to do so, we've got a very proven acquisition team. We are hoping to grow that £1.25bn to £3-4bn in the medium term. We know how to integrate businesses extremely well - why wouldn't we move into an adjacent sector to see if there are more opportunities there?”
Hartley said he could not disclose further details at this stage but said the firm was in “very active discussions” with three firms of that nature at the moment which could happen possibly this year.
“What we are finding is that the due diligence process with the DFM business is just that little bit more involved and takes a little bit more time than it does with the financial advisory business,” he said.
“We've been doing this for six or seven years, so possibly, we may do something this year, but I would think more realistically in 2022.”
DBO scheme
Fairstone has been running the downstream buyout scheme for nearly seven years and said it has had 59 firms come into the DBO model, of which it has fully acquired 38.
The downstream buyout acquisition model integrates IFA firms into the group, typically over a two-year period, prior to final acquisition.
Outside of the firms that are already in the programme with scheduled acquisition dates, Hartley said “north of 55 firms” are at present coming onto the DBO programme and “interest has never been higher”.
“There are 20 firms that we will acquire all the rest of this year and next year, and maybe the early part of 2023 because we only have a two year rolling programme, and we bring on board on average, ten to 12 new firms per year.
“It is the core driver of growth in the business. It works, and it means that we are talking to a different community of people, we're talking to business owners who do not want to sell today. They want to grow and want somebody to invest in their growth and support them.”
Fairstone’s raft of acquisitions generally materialise from firms in the DBO scheme, Hartley explained.
Earlier this month, Fairstone acquired West Yorkshire-based Utopia Financial Planning, adding funds under management in excess of £100m.
Just a week prior to that, it acquired Belfast-based ASM Financial Planning, securing funds under management in excess of £250m.
This year it also finalised the purchase of Hammett and Petch Financial Planning which secured more than £60m in assets for the national wealth manager in its first deal of the year.
Following this, in March, the wealth manager acquired Glasgow-based Chartermarque.
Hartley said: “We've never had a year where we've done quite so much. Within three days of lockdown, we had pretty much the entirety of the business working remotely so that was really good.
“We developed the remote device platform to effectively replicate face to face engagement with clients through tech and that has been one of those rare things that worked first time straight out of the box. Advisers loved it, clients loved it and that's become quite a fundamental part of what we do.”
Hartley said it onboarded ten new firms to the buyer programme and completed 11 acquisitions.
“At the turn of the year we brought in a new shareholder in two years, which enabled us to bring in more firepower, liquidity and a return to early stage shareholders, but also Synova who were our previous private investors have reinvested into the business.
“We ended 2020 having delivered everything that we said we would deliver, all deals that we wanted to complete had completed.
"They were all three months later than we expected because clearly the whole world suffered two or three months, but it was an unbelievable year in many respects when you consider all of the very sizeable and significant things we managed to achieve and it put us into a very good position for this year.”
Fairstone's strategy
Hartley explained that in order to reset views of what the next five years hold, the firm is currently going through the strategy process as it wants to “stretch the ambition” of the business.
“We've never been stronger from the financial perspective, we've got an extremely deep and wide capital base and we see the market in a very positive light,” he said. “What we are going to be looking to do is more deals of a slightly larger nature and do some slightly different things as well.
“Instead of buying purely financial advisory businesses, we are going to move into the DFM space as that is something we are definitely interested in.”
He said some of the areas the firm will be looking at is seeing how far the DBO programme can go, questioning whether the firm could do 50 per cent more deals, or increase the size of the firms coming on board by 25 per cent or 50 per cent.
“We'll be making some senior hires over the course of the next six to 12 months. As we get bigger, there are a number of roles that we will need to recruit into. There will be new faces joining the team, we will be making more investment into our business development function, i.e. the part of the business that drives the buyout programme.”
Fairstone is also looking at upgrading and consolidating offices to move into an agile working environment. “We built our East Midlands hub where we moved three businesses that we bought in the East Midlands into one new purpose built locally - that's been a fantastic success.
“We'll learn to replicate that in a number of other areas across the UK.”
He added: “We don't anticipate any functions within the business becoming entirely remote working functions because even though we can do that, I worry about people becoming disconnected from the business.
“One of the jobs that we've had to tackle over the last couple of months is that we recruited 30 new people over the course of 2020 and until recently, they hadn't met many of their colleagues.
“If you want people to really understand the business, the process, the culture, how we do things, having them working permanently, remotely, isn't the best way to do that.
“Agile working is very much part of our thinking.”
sonia.rach@ft.com
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