IFAJul 5 2019

More acquisitions expected as regulation bites

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More acquisitions expected as regulation bites

The first half of 2019 has witnessed an acquisitions market seemingly undeterred by the political uncertainty of Brexit, with large players the likes of Quilter leading the charge for buyer demand. 

Last week Quilter added £211m in assets under management to its national advice business with three acquisitions in the south east of England and earlier in the month completed its £46.2m purchase of national advice company and network Lighthouse, gaining 400 advisers in the process. 

The flurry of activity is one Stuart Dyer, chairman of introducer Soprano Mergers and Acquisitions, predicts will continue over the coming years with an increase in both supply and demand for consolidation of all sizes in the market. 

Mr Dyer said: "We’re seeing a heck of a lot of activity at the moment, we are talking to a large number of potential sellers and I think we are seeing two things.

"First of all there are some people who have almost reached the end of their tether and are looking to get out now, but we’re also talking to a number of businesses where they are still trading profitably and providing good advice - good sound businesses, but they’ve made the decision that over the next couple of years they will be looking to exit."

Mr Dyer, who formerly joined Cofunds as its chief executive in 2001, said demographics and succession planning had a popular part to play in the number of acquisition deals coming to fruition in the market. 

The owners of Windsor-based Petrus Financial Services and Surrey-based ROC Consultants, two of the firms most recently bought by Quilter Private Client Advisers, are set to retire once their clients have been transferred to Quilter. 

But the burden of regulation is also encouraging advisers to consider selling their business, Mr Dyer said.

He believes the Markets in Financial Instruments Directive and the Senior Managers and Certification Regime, due to be implemented in the advice market later this year, had been "shaking up the market". 

He said: "It is very tough out there to deal with the wave of regulation which is coming down on advisers.

"Just dealing with the administrative complexities, and some of the processes which they are now having to deal with, are proving very difficult.

"So I think we’re certainly going to see greater activity, we can feel it. We’re talking to a lot of potential sellers and there are buyers waiting."

Mr Dyer said he expects to see any further consolidation happen at a "much faster pace" than that seen in recent years. 

Soprano is also anticipating growing private equity participation in the acquisitions market, having already witnessed a significant interest from private equity buyers which Mr Dyer expects will create "additional demand" for advice businesses. 

He added: "Private equity has been around for some time, I think the difference now is at one time it was only the very large businesses which were attracting their attention.

"But I think now we’re seeing that they are prepared to look at smaller opportunities which can, through acquisition, grow substantially and provide a really good return.

"There is a much broader interest in the space and alongside the traditional consolidators, some of which are private equity backed, we are seeing some interest from other potential sources - be it private equity, potentially fund managers or discretionary managers."

Earlier this month adviser consolidator Succession Wealth acquired six financial advice businesses, adding £800m in assets under management and bringing its total to more than £8bn.

Mark Stokes, group communications and public relations director at Succession, said securing £10bn assets under management by the end of 2019 was still a "very realistic objective" for the company.

Whilst Mr Stokes recognised demographics in the advice industry were a contributing factor towards the acquisitions drive, he said it was fairly rare principals of firms acquired by Succession would seek to retire immediately and instead pointed to the "increasing weight of regulation" as a major motivation for advisers looking to sell. 

He said: "I think regulation and the associated burden means a lot of IFAs find themselves spending 50 or 60 per cent of their time running their businesses now and not actually seeing clients, and I think that’s what most of us came into the industry to do."

Mr Stokes said larger players in the consolidation market now had "very good" firms from which to choose, confirming Succession has seen a "much higher" level of activity than since it started buying businesses. 

He added: "There is no shortage of quality businesses, but we make a point of not buying every one we are offered and each deal is assessed on its own merits. 

"We are thrilled that most of our principals are still with us. On fairly rare occasions someone wants to retire.

"We have a number of planners who will no doubt want to retire over the next couple of years which is why we’re quite keen on our graduate and fast-track programmes because they are brining some great talent through." 

Since the launch of its advisory business five years ago 55 companies have joined Succession, which recently abandoned its 'acquisition in reverse' model to buy advice firms and began to target larger companies with assets in excess of £100m. 

Mr Stokes added: "Most of the time, certainly recently, we are buying firms that want to expand and continue to grow and develop their business, and they are quite happy to do that with Succession."

rachel.addison@ft.com

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