Private equity deals will bring more replatforming

Mark Polson

For years, one of the best games in the sector was to predict how many platforms would be left at a certain date, often 2020, and just how brutal the wave of consolidation would be.

Estimates would range from ‘a lot’ to ‘just a few big ones’ to ‘another gin and tonic please, Rupert’.

Year after year the predictions were made, and year after year they proved to be fantasy, not least because the people doing the predicting were often platform chiefs who fondly imagined that consolidation would be the sort of thing that would happen to other people, not to them.

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So what happens when the velocity of corporate activity in the platform sector really does tick up? Are we happy? Is it good for the market, whatever that means? Is it good for advice businesses, and what about the client at the end of the line? After all, only one person is ultimately paying for all this.

We have had a chance to find out in 2020 and 2021. It has been a dizzying 18 months or so, in lots of ways, with no end of deals going on.

The least vibrant market participants are the big platforms – broadly those with £50bn or more under administration.

They are not taking out the small to medium players. Instead, the medium and smaller shops are combining in an attempt to generate scale and take on the Transacts, Old Mutual Wealths and Standard Lifes of the world.

Of course, there are also straight-up changes of ownership, which give providers such as M&G a relatively ready-to-go platform proposition for its own strategic ends.

In most cases changes of ownership of this type rarely make much difference to advice businesses and clients. As we are fond of saying at the Lang Cat, it is better to have a parent that loves you than one that doesn’t. When greater disturbance happens, it tends to be when replatforming or major technological change is involved concurrently.

This is a concern for the private-equity-backed deals that are so prevalent in the mid-market. You can imagine the PowerPoint slides the private equity guys are working through.

Smash a bunch of smaller providers together, keep what works, ditch the rest, update the tech, improve the operating model and end up with something worth more than the sum of the parts. A five to six-year flip, lovely.

The problem, as all advice professionals know, is that in no way is it anywhere near that simple. Bringing platforms together and changing architecture is an astonishingly complex exercise, and even when everyone is at the top of their game, the potential for disruption is huge.

One saving grace is that the disruption is felt more by advice businesses than by clients. That may not feel like a saving grace to readers, but you are better able to absorb issues than clients themselves.