Firing line  

Fairstone boss explains why he's paying more for acquisitions

Fairstone boss explains why he's paying more for acquisitions

He runs a wealth management company that has gained almost £700m this year in funds under management from acquisitions, giving the company a total of £8.8bn FUM.

Not bad for someone who does not have a financial advice qualification.

But Lee Hartley, chief executive of the acquisitive Fairstone Group, credits the support in decision-making he gets from a management board of industry experts, including advisers.

Coming from a non-financial advice background, Mr Hartley says this means he can bring a customer perspective to the decision-making.

He became interested in the financial advice sector after many years of launching tech systems on behalf of corporate financial services clients, which then had to be implemented within financial advice companies, networks and wealth management companies.

With Mr Hartley at the helm, it is unsurprising the company also has an acquisition model that is different from the mainstream; considering his tech and business development background.

The downstream buyout model operates by integrating an IFA company, typically over a two-year period, before finally acquiring the business.

It is the opposite of the more traditional buy-and-build structure, where typically the integration of the business is done after the acquisition.

“We think that is the wrong way to grow a people-based business,” Mr Hartley says.

“Integration is hard. And it needs to be done over a long period of time and in a way that does not create business friction post-completion [to the earn out]. 

“We integrate over two years, sometimes three years, helping that business to grow and then we acquire them at their optimal value.”

This approach means that Fairstone is writing bigger cheques.

As Fairstone helps the business grow its bottom line, this then increases the valuation.

Fairstone re-calculates the purchase consideration every year in the earn out.

So, even if the company continues to grow even after it has acquired the business, Fairstone will re-calculate the sale value, and then share the upside with the sellers.

But Mr Hartley is comfortable with that. Fairstone services 65,000 clients and has 650 staff who operate from 42 sites, although currently they are working from home.

“Across all of the deals that we have completed so far, the current average [sale value] is 112 per cent.

“So the sellers are not just getting 100 per cent premium value, but also they are getting 12 per cent on top of that because of the continuation of organic growth.

“We prefer to write a bigger cheque for a firm that’s fully integrated, that we know everything about, where not just systems and processes are aligned, but also all the people and culture – the important glue that binds an acquisition together.”

Long-term outlook

Mr Hartley says having continuity of capital gives Fairstone’s acquisition strategy a long-term outlook.

In February, Fairstone completed its most recent round of fundraising, which has given it the “fuel” for more acquisitions over the next five years.