The recent flurry of activity from smaller sellers in the advice market has been frequently attributed to rising regulatory costs and retiring principals, but the number of sales on the higher end of the scale are also growing in volume and value.
According to data collated from mergers and acquisitions adviser Imas Corporate Finance, the amount spent on IFA deals worth more than £5m last year jumped 111 per cent to £249m, up from £118m in 2018.
The number of deals in this category also increased over the same period, from seven deals in 2018 to 11 deals in 2019 - with an average spend per purchase of £22.6m last year.
The figures are part of an upward trajectory seen in this area, with the amount spent on these types of deals also increasing between 2017 and 2018, jumping 10 per cent from £107m to £118m.
Louise Jeffreys, managing director at introducer Gunner & Co, said the individual value of transactions her company has advised on over the past two years has doubled year on year.
Deals valued at more than £5m make up 30 per cent of the businesses in the process of selling through Gunner & Co and Ms Jeffreys said the growing trend was set to continue.
She said: "While retirement continues to drive the growth in volume of transactions in the smaller value space, many leaders of larger and growing firms are younger – closer to late 40s or early 50s, compared to the demographic for ‘one-man bands’ in their 60s and 70s.
"This younger breed of professional and commercial business owners is less drawn to the consolidator market. A new wave of transactions and buyers is forming, more investment-led, to appeal to this younger market.
"These transactions and buyers allow owners to take capital off the table and de-risk their position, while accessing cash injections that allow for greater growth and a high level of autonomy."
Two higher value acquisitions of note last year were Quilter's purchase of national advice company and network Lighthouse in a deal worth £46.2m, and Ascot Lloyd's acquisition of IFA Newell Palmer in a move which is estimated to have added more than £12m in revenues to the group.
Ms Jeffreys added: "While transactions like the Quilter-Lighthouse and Ascot Lloyd-Newell Palmer deal will sit near the top of the 11 deals in last year's segment, mid-size regional firms have also taken advantage of the opportunity to grow through the acquisition of sub-scale businesses. This is increasing the stock for larger transactions.
"To reach a £5m value, businesses are likely to have grown to around £250m funds under administration – not an unrealistic target for a regional business that has bought up a handful of retirees locally."
Also thought to feature in deals valued at more than £5m in recent years were Standard Life’s acquisition of Grant Thornton's wealth advisory unit with £1.7bn of assets under advice, and the purchase of Ascot Lloyd by consolidator Bellpenny in 2017.
Stuart Dyer, chairman at introducer Soprano Mergers and Acquisitions, said the increasing figures were "very much in line" with his company's own experience of market conditions, in a trend he expects to accelerate.
Mr Dyer said: "The main drivers have not really changed, except perhaps that the prolonged bull market means the value of IFA businesses has grown commensurately. Professional indemnity insurance has also become a more prevalent issue."
He added: "The other factor is greater demand—we are seeing private equity-backed businesses pursuing aggressive roll-up strategies, from new entrants as well as the established players, and the characteristics of the IFA market are attractive to private equity.
"There seems to be a balance between supply and demand and it is difficult to determine which way this will move in the medium term. However, we are sensing a slight hardening in pricing."
Fred Hansson, partner at IMAS Corporate Finance, agreed the market had attractive characteristics for private equity investors, attracting capital which expected a certain return.
He said: "The big firms are getting bigger and acquiring smaller entities, so there is a lot of deal activity across various sizes and categories of IFA businesses, possibly because there are more buyers now. I think that has made vendors aware this is probably a good time to sell."
rachel.mortimer@ft.com
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