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.
Engage with a purchaser before making any changes, as what may seem sensible may not be what the buyer is looking for or they may overlook.
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.
FTA: Do you tend to ask companies to fix certain elements in their business before agreeing to a purchase or do you filter companies based solely on what is there?
DL: We are typically making an assessment on what is there. However, we are building up a healthy pipeline of businesses where, for either side, the timing was not quite right for a sale or purchase.
This is not always that the business needs to 'fix' something, as it can be that they wish to grow a little more themselves, or some changes may benefit both them and a purchaser such as Kingswood.
FTA: What is your advice to businesses currently looking for a buyer? Are there any particular issues they should be bearing in mind or trying to fix?
DL: My primary advice would be to not leave it too late. It may take up to 12 months to conclude a sale and if you then add on two to three years of an earn-out period, sellers often say they wished they had thought about it a bit earlier.
Another piece of advice would be to engage with a purchaser before making any changes, as what may seem sensible may not be what the buyer is looking for or they may overlook.
Having a separate viewpoint on the strengths of your business can add to its sellable value.
Similarly, with successful businesses that are growing, sellers often are in two minds on the best time to sell. Kingswood is able to structure deals where future growth can be included in the consideration so this should not be a reason to pause if the timing is not quite right now to meet other objectives.
FTA: Will the consumer duty make target businesses higher quality?
DL: Yes, it will as, in fact, does the level of regulation in general that we see today. All initiatives to ensure client conduct is optimal have to lead to a higher quality of business. Certainly, at Kingswood we set the bar on our client outcomes very high and consumer duty simply formalises this.
FTA: What are the main difficulties in expanding abroad?
DL: Expanding into other countries requires a high level of capability in operating across different jurisdictions and regulatory regimes.
In addition, while it can be the case that companies can operate ostensibly as separate businesses across jurisdictions, the most optimal scenarios are where there are some synergies, be it technology, investment proposition or similar.
FTA: What do you make of the interest coming from private equity houses in the UK advice market?
DL: I am not at all surprised at the level of interest from both UK and international private equity houses as the sector has some very strong opportunities for consolidation.
It has shown itself to be insulated from headwinds such as Covid-19, and this and other macro features make it a very attractive sector. Kingswood has benefitted here from investment by Pollen Street Capital, without which it could not have delivered such accelerated growth.
carmen.reichman@ft.com
