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Private equity driving 'dramatic' rise in consolidation

 

Increasing private equity investment is likely to see consolidation in the financial advice market increase "dramatically", it has been claimed.

Stuart Dyer, chairman of introducer Soprano Merger & Acquisitions, said a lot of private equity money was starting to enter the financial advice market.

He said: "It has always been there but it has tended to focus on the larger businesses: the Tilneys and the Ascot Lloyds.

"We have seen, rather than the big private equity players, the mid-market private equity players come into this space.

"Whereas previously private equity was really looking for a profitability level [...] of around about £5m before they got interested, we are now seeing those levels considerably reduced and businesses with as little as £1m in [earnings before interest, tax, depreciation and amortisation] are attracting the interests of the mid-market private equity firms.

"So there is a considerable amount of money backing the institutional backers of IFA businesses.

"We are seeing increased demand and we are seeing an increase in supply at the same time, and the impact of that is we are seeing prices stay relatively stable but certainly it's giving rise to an increased level of activity."

Mr Dyer said the increase in supply was being driven by issues such as regulation, particularly the introduction of Mifid II, but he also said the demographics of the advice market meant many principals were looking to sell up.

He said: "The introduction of Mifid II has had a considerable impact, particularly at the smaller end of the market. The increased administration tasks associated with client reporting in Mifid II are really quite considerable.

"Our expectation is that the rate of activity is going to increase significantly over the next three years. Over the next three years we expect 500 to 700 firms to sell. A lot of those will be at the smaller end of the market but we think activity is going be dramatically increasing."

damian.fantato@ft.com