Firing lineMar 30 2021

New Kingswood boss outlines future acquisitions

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New Kingswood boss outlines future acquisitions

When David Lawrence took on the first chief executive role of his long career in financial services in December 2020, he was walking into a storm. 

The new boss of advice market consolidator Kingswood was not merely faced with the pandemic, and the stark uncertainty in markets it created. He was also charged with trying to source and value acquisition targets in a market that is both filled with uncertainty as well as rival businesses also trying to buy advisers. 

Lawrence admits that “valuation expectations” have risen as more buyers enter the market, especially for the medium to large advice companies, but says it has not got to unreasonable levels as “while there are many firms looking to acquire, there are far more looking to be acquired”.

Kingswood has acquired five advice companies in the past two years, backed by the capital of its private equity backers, who hold a stake. 

Lawrence says “finding value for money” with the acquisitions they undertake is a priority, and he has a number of guidelines to help select acquisition targets.

As a listed business we can use Kingswood shares as part of our kitbag, as well as cash

He says: “We want to be able to achieve a 20 per cent return on investment over the medium term from the investments we make. We can be quite flexible in our buyout models.

"As a listed business we can use Kingswood shares as part of our kitbag, as well as cash. In terms of the types of firms we are trying to buy, we want businesses that are hungry to grow.

"Mature businesses where the owners want succession planning is less appealing to us. We don’t want a situation where we are buying a firm and the principal adviser leaves.” 

He says the most common question asked of Kingswood by advisers of companies they acquire is: "'Can we [at Kingswood] take away all of the stuff that isn’t advice?'

"And that is what we want to do. We can do compliance and the governance, and we have a chief economist, and an investment team. So if we do all of that, then what is left in the firm we acquire is the advice, and that is where a lot of value is.”  

He says many of the areas that advisers want increasingly to focus on are those such as tax planning and post-retirement planning – “areas where they cannot get it wrong”. 

The company has risk-weighted model portfolios, including income and environmental, social and governance mandates.

Lawrence joined the business having previously been chief commercial officer at Schroders Personal Wealth, and prior to that, worked for more than two decades within Lloyds Banking Group, latterly as chief commercial officer and chief operating officer for UK wealth at the private banking arm.

Lawrence says helping to set up SPW from scratch and to integrate clients coming from both businesses into the new entity provided him with valuable experience in his current role, and also the confidence to pursue the chance to become a chief executive.  

He says: “The work I did with SPW gave me the confidence to believe I could be a chief executive, and that I wanted to be a chief executive, which previously I had not really thought was something I would do.

"I had the experience of working in Lloyds, of being quite senior in a very big machine; to then being part of a small team at SPW – it was a new experience and very beneficial."

He adds: "For something like due diligence I am very glad we have experts who can do that. Integrating clients is something that I can help with, the experience of integrating 40,000 clients into SPW is something that is standing me in good stead now.” 

There are four stages to integrating businesses into Kingswood, from pre-completion to fully integrated, but Lawrence says it is an approach that is also tailored to suit different companies, and says the experience of buying and integrating larger companies has helped to refine this process. 

One area where Kingswood is differentiated from rivals is in its purchase of US advice businesses. 

Lawrence says the rationale for investing in the US market is the same as for the UK, with the advice industry dominated by thousands of small companies. 

He says the US operation is much closer to what in the UK would be called a network of advice companies, rather than a vertically integrated business, as Kingswood is in the UK. 

The chief executive says that consolidation will ultimately benefit clients as it will drive costs down. 

When it comes to the financials, the target is to achieve £20m of earnings before interest, tax, depreciation and amortisation by the end of 2022, and to achieve this Lawrence says “aggressive adoption of technology and digitisation is one of the major items on his to-do list for the year ahead".

While happy to describe Kingswood as a vertically integrated company, focused on both the US and UK, he says he will not push Kingswood into other areas of the market, such as platforms.   

He says: “I think the areas we can win at are advice and investment management, so we will keep focusing on those areas, and then negotiate with the providers of other services in order to achieve good margins.

"Most of the acquiring we do will be advice firms, but we would also consider buying investment management first if they came up.

"One part of my job is identifying firms that I think would be a good cultural fit; that can be quite time-consuming and starts quite a while before the deal is done, but it is what we focus on.” 

David Thorpe is special projects editor of FTAdviser