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Who is buying advisory firms and why?

This article is part of
Guide to buying and selling a firm in 2017

Who is buying advisory firms and why?

Small, large or consolidator: which sort of business is on the hunt for advisory firms in 2017, and why?

Nearly every week the financial services industry hears of yet another planned merger or acquisition.

It could be a wealth manager merger, such as the talks between Rathbone Brothers and Smith & Williamson which recently came to an end without a deal.

Or it could be the purchase of an adviser network, such as Sanlam UK buying the adviser network business of Tavistock Financial from Tavistock Investments, the appetite for acquisitions has not abated. 

Linda Whittle, senior associate for law firm Fladgate, comments: “Global and European merger & acquisition (M&A) trends so far this year suggest the market is seeing a smaller number of deals than during the same period in 2016, but with higher transactional values.”

Indeed, some of the deals do involve big numbers. The Sanlam UK purchase of Tavistock Financial cost £1m, and it brought 158 financial advisers, 25 staff and £1.5bn of assets under advice to Sanlam UK.

James Dingwall, founder and chief executive of Thistle Initiatives, says: "The majority of firms are now focusing on larger acquisitions instead of smaller firms. 

"We also expect to see a number of the larger consolidators merge, exit or go for a listing in the next few years."

Big appetite

Is the market for buying and selling in the advisory space still hot?

According to Lawrence Cook, director of marketing and business development at Thesis Asset Management, it is.

He says: "To judge by the numbers of delegates attending our annual conference choosing to attend a session on buying/selling an advisory business we can say that the market is still hot.

"Firms wanting to stay as advisers want to get bigger or at least make more money and they see greater scale as a means to achieve that.

"For that to become a reality a buyer needs to buy wisely and execute the business plan well after purchase."

According to the Personal Finance Society, there are four main acquisition/disposal scenarios which are whetting the appetite for M&A activity in the advisory space. These are: 

  • Horizontal: buying a complimentary business as part of a growth strategy.
  • Vertical: Consolidation through the acquisition of an actual supplier or distributor.
  • Diversification: moving into a new market sector or different advice type.
  • Geographical: as part of expansion plans into a new region.

Moreover, there seems to be plenty of funding available. Mr Dingwall adds: "While funding is easy, we still expect to see acquisitions."

Small is beautiful

But while these big-ticket buys hit the headlines, a significant trend noted in the UK particularly is for smaller firms to make strategic purchases.

According to Tom Hegarty, managing director of SimplyBiz, one of the reasons small firms like to buy or sell to other smaller firms is because of the cultural fit.

He explains: “The majority of directly authorised IFA firms tend to be smaller businesses, therefore the service delivered to clients is of paramount importance when considering a sale.