Advice M&A set for 'race to completion' in Q1

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Advice M&A set for 'race to completion' in Q1

The first months of next year could see a "race to completion" in the mergers and acquisition market amid predictions of a spike of advice firm sales. 

The first months of the coronavirus crisis saw some step away from the acquisitions market, whilst others proceeded full steam ahead undeterred by the upheaval of lockdown and market volatility. 

Louise Jeffreys, managing director at introducer Gunner & Co, predicts more of the latter in the advice market next year. 

Ms Jeffreys said: "I think the first quarter of 2021 will be remembered as the race to completion – with speculation around changes to Capital Gains Tax and the potential impact that will have on the taxation of transactions.

"Buyers and sellers are more focused than ever to get deals finished."

Gunner & Co is expecting 75 per cent of their annual transaction volumes to happen in the first quarter of next year, with Ms Jeffreys hinting at a continued hike in sales throughout the rest of the year and into 2022. 

She said: "The momentum to sell brought on by the pandemic, the continued ageing of small business owners in this profession, the lure of private equity money into the buying market diversifying the options a seller has, and all the owners that put it off in 2020, will mean that transactions could explode next year."

A number of bigger advice players have used this year to seal deals in pursuit of expansion, with Fairstone and new-entrant consolidator Independent Wealth Planners active in the market to name but a few. 

Ms Jeffreys said Gunner & Co typically had at least four suitable parties for each seller, taking into consideration the shape of their business and motivations.

She added: "Decisions on who to pick can become difficult to measure, but perceived cultural fit is often a deal maker. 

"Whilst buyers may become pickier as more firms come up for sale, I cannot see the market being in a position where sellers of compliant firms can’t identify credible buyers."

According to Ms Jeffreys sellers were also more likely to see pressure on terms such as upfront consideration and earn-out periods, rather than pressure on price. 

Last month FTAdviser reported mergers and acquisitions in the financial planning sector were enjoying a "perfect moment" in the wake of valuations increasing over the past two years. 

It came as national wealth manager Fairstone revealed it had spent an additional £5.4m on acquired businesses which exceeded their initial target value over the past nine years. 

A robust market 

Ms Jeffreys said this year Gunner & Co only witnessed a drop of 19 per cent in transactions announced through the introducer's newsletter year-on-year.

She said: "Since most advisers needed time to focus on getting their businesses in order, I would have expected transaction volumes to have been hit harder.

"And with anecdotal evidence of the growing size of deal values, plus the IMAS data shared by FTAdviser backing that up, I wouldn’t be surprised if the total value of transactions at least matched 2019.

In March FTAdviser reported funds spent on larger mergers and acquisitions in the IFA market jumped by more than 100 per cent last year to £249m. 

Ms Jeffreys added: "That the market held up is in part due to the nature of these transactions - our analysis shows the average lead time to sale for financial planning firms, from first meeting, is in excess of six months.

"So many deals would have been in motion ahead of the pandemic.

"Furthermore, the changing business environment has expedited some owners' plans to exit – and the buying market has not only remained stable but in fact grown." 

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