InvestmentsDec 15 2020

Why private equity firms are buying platforms

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Why private equity firms are buying platforms

Platforms will be bought by private equity firms “in more cases than not" as consolidation continues.

This morning Novia announced it had been bought by private equity firm Anacap - as fellow private equity firm Bain Capital confirmed it had bought life and pensions provider LV - and  Ben Hammond of consultancy firm Altus said this pattern would continue during 2021.

Meanwhile James Hay was bought by private equity firm Epiris in 2019.

Mr Hammond said: “The last few months have been particularly busy in platform M&A land and the industry has got to a stage where there is some definite profitability to be seen.

"PE firms are now taking much more interest, with both Epiris and Anacap entering the market in the last 18 months, and now Bain also getting in on the action.

"There are a number of other platforms up for sale, some in more advanced conversations than others, and I’d expect a PE firm to pick these up in more cases than not. 2021 is going to be one to watch in terms of platforms continuing to change hands.”

Epiris are among the bidders for the Nucleus platform, a list which included rival private equity firm Acquiline Capital Partners until it pulled out earlier this month.

Mike Barrett, consulting director at the Lang Cat, said: “We are certainly seeing private equity and investment interest in the advice sector. This interest extends to advice firms, platforms and technology suppliers.

"On one hand this is a reflection of the strength of the sector, and in particular the demand for advice from clients approaching retirement.

"The challenge will be to ensure that the desire some private equity investors have for rapid short term growth doesn’t come at the expense of client suitability in a sector that tends to be more focused on long term returns.”

Two informed sources have told FTAdviser that at least one private equity firm has expressed an interest in the Parmenion platform, and been quoted a price of £150m. 

Parmenion is owned by Standard Life Aberdeen and was put up for sale last month because it wanted to focus on its two other platforms - Wrap and Elevate.

Both sources expressed skepticism at the valuation. To put the £150m figure into context, Parmenion has assets of £6.5bn. Aegon paid £140m for Cofunds in 2016, which at the time had assets of £77.5bn.

Mr Hammond said platforms such as Parmenion, which operate their own technology, are likely to command higher price relative to their assets under administration than platforms which  outsource technology.

Mr Barrett said that assets under administration, while important, were just one of the considerations that go into valuing a platform business, with the others including:

  • Level of flows
  • Net/gross ratio for these flows
  • Market share (falling/growing?)
  • State of technology
  • Adviser profile – is there any owned/controlled distribution? How big are the advice firms who use the platform? Are they using the platform as a primary platform?

Parmenion declined to comment for this article.