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Ten buyers chasing every advice firm

Ten buyers chasing every advice firm

Advisers who are considering selling their firms are being told to do so sooner rather than later, in order to take advantage of current high prices in a sellers market.

Brian Spence, partner in merger and acquisition consultancy Harrison Spence, said he has seen a “complete reversal” in the IFA acquisition space.

He said: “Five years ago there were 10 IFA vendors for every acquirer. Today, there has been a complete reversal.

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“For every vendor, there are now 10 acquirers chasing a signature [sale] – meaning it really is a seller’s market for owners of quality IFA practices.”

“In reality, the market has changed considerably and there are many considering a sale but not just yet - perhaps three or four years down the line.

“Many wise IFAs are seeking a solution now, in preparation for the future.”

He added that advisers seeking to sell could achieve anything from six times recurring up to nine times earnings before tax and deductibles.

Traditionally the level has been around three times, to three and a half times earnings.

Mr Spence added that the majority of enquiries to his company came from advice firms not looking to sell now but looking for help with exit planning.

The number of large advice businesses looking to acquire has gone up in recent years.

As well as providers which are looking to buy, such as Standard Life and Old Mutual Wealth, there are vertically integrated consolidators such as Succession, AFH and Sanlam.

In addition, there are other large firms seeking to expand by acquisition including Chase de Vere, Tilney and Foster Denovo.

Fred Hansson, a partner in merger an acquisition at advice firm Imas, said there was some truth to the picture which Mr Spence had painted.

He said: "There are a number of very seasoned and professional companies that have very strong capital backing from private equity or the public markets who have developed this into an art form.

"There are certain advisory group that have grown now to a scale where they feel very confident of their own destiny and they have the ability to raise capital. The strong are becoming strong and the weak are becoming weaker."

He added that part of the reason it may appear as if the number of buyers is so much greater than the number of sellers is because buyers are buying firms they know, either because they use a platform they provide or because, like Succession or Fairstone, they are being integrated before the deal goes ahead.

But Nigel Speirs, managing director of Old Mutual Wealth Private Client Advisers, said he didn’t recognise Mr Spence’s description.

He said: “Our experience of the financial advice market is different, we find that it is still thriving and continue to see a large number of financial planning businesses considering their exit and succession planning options.

“We have not seen any notable changes in market multiples.”