Consolidator  

Adviser consolidation market reaches 'turning point'

Adviser consolidation market reaches 'turning point'

Consolidation activity in the financial advice industry has been flagged as having reached a turning point.

Brian Spence, the founding partner of consultancy firm Harrison Spence said consolidation could be reaching its limits.

He cited the increasing prices he had seen for advice businesses combined with the willingness of some companies to put more upfront.

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Mr Spence said instances where a consolidator paid 50 per cent upfront were unusual but were becoming more popular as competition “hots up”.

He said: “There are far more acquiring firms than there have ever been in proportion to vendors.

“Because there are more acquirers out there, inevitably prices have gone up but they can only go up to a certain extent, otherwise it is financial madness.

“We have seen multiples of four times for a client book – that’s the highest we have ever seen.

“We have definitely reached a turning point in M&A activity. In some ways we are reaching the limits of consolidation.”

Mr Spence added that business which pay more upfront make themselves more attractive to advisers, who can feel acquirers have a reduced risk in the transaction.

He said the nature of the business his firm was doing had been changing recently, with a shift in interest towards general consultancy work away from M&A.

Over the course of 2016 a number of big providers have stepped into the advice market to buy up firms, including Standard Life and Old Mutual Wealth, while consolidators such as Succession and Fairstone have continued to buy up firms.

Meanwhile other consolidators have made fewer acquisitions, with AFH making only two so far this year claiming it wants to focus on "shareholder value".

But he said one area that could keep consolidation going is interest from overseas, particularly given the prospect of foreign companies paying for firms in a different way.

He said: “These guys can pay 100 per cent up front but value the business on an Ebitda basis.

“We have seen significant new interest into the market place that is international and has not been heard before.”