Mergers and acquisitions are rife in the advice market, but there are a number of things advisers should be aware when looking for a buyer, says David Lawrence, chief executive of Kingswood Holdings.
There are few completely clean deals in adviser M&A, but generally speaking businesses are in good shape, driven by tighter regulation and more critically aware business owners, he says.
Kingswood has been buying advice businesses for a number of years with private equity backing and even took the plunge to expand overseas three years ago.
But buying businesses is not always without problems, and like many of its competitors Kingswood has had to pull out of deals in the past.
Lawrence tells FTAdviser what he is looking for when scouting for adviser target businesses and why the consumer duty will raise the quality of what is on offer.
FTA: What is the first thing you look for when scouting the market for buying opportunities?
DL: The most important thing is often 'fit' – we are looking for businesses that demonstrate a client-centric culture with a key focus on their people and their clients.
Closely linked to this is ambition. We are looking to purchase businesses that, despite wanting to secure an exit event, have unfulfilled ambition where Kingswood can then support their growth story.
FTA: What is the most common thing in a target business that breaks a deal?
DL: Not asking the right questions at the very beginning can lead to problems later on. It is critically important that there is an alignment of what both parties consider to be a successful outcome. It is also important to work at the pace of the seller.
At Kingswood, we only enter into a heads of terms sheet when we are confident that we can conclude the deal. This requires a suitable amount of due diligence to be carried out very early in the process.
FTA: Are there any difficulties or flaws in a target business that you are willing to overlook?
DL: By nature, there are few completely clean deals as businesses come to sale with various wrinkles. What is important is the cultural fit, their track record in giving advice and not having any features that could provide unpalatable risk.
At Kingswood, we do not have a fixed purchase model and are keen to work with sellers to tailor an appropriate deal for them.
FTA: What is the quality of target businesses currently out there?
DL: Target businesses are typically of high quality. I think the increased regulation seen in recent years, coupled with businesses taking a more critical look at themselves during Covid-19, has led to businesses making positive changes pre-sale so at the point when they engage with companies like Kingswood, the quality is high.