It is common to hear that another advice business is being acquired by a consolidator. But a consolidator being the target of an acquisition, less so.
Last week Aviva announced it was acquiring the entirety of Succession Wealth for £385mn in cash.
Aviva says the acquisition will accelerate its ability to offer advice to its 6mn pension and savings customers, and that the acquisition will enable it to retain more of the circa £6bn of pension and heritage assets that leave to be invested with competitors each year.
The line echoes Lloyds’ acquisition of Embark, when the banking giant said it aimed to retain more of the circa £10bn assets under administration that customers invest with third parties each year.
Who are Succession Wealth?
Succession Wealth is a national independent advice business, which was founded in 2009 and subsequently received investment from Inflexion in 2014 when the company had £1.7bn of assets under advice.
At the time, the private equity company said its investment would enable the Succession management team to deliver their vision of creating the UK’s largest independent wealth management business through a ‘buy and build’ programme. The goal was to acquire 50 member companies by 2017, the same year of founder Simon Chamberlain’s untimely passing.
In 2020 the business almost halved its operating loss in a year that represented a “step up” in its financial performance.
Year ended December 31 2020 (£mn) | Year ended December 31 2019 (£mn) | Year ended December 31 2018 (£mn) | |
Turnover | 73.7 | 74.1 | 69.9 |
Operating loss | (3.5) | (6.9) | (5.7) |
Loss before tax | (16.2) | (17.0) | (14.5) |
Source: Companies House / Succession Holdings Jersey Limited | |||
Succession Wealth comprises approximately 200 planners advising around 19,000 clients on £9.5bn of assets. The consolidator’s acquisition of Oxford Advisory Partnership, announced in January, marked its 60th deal.
When asked why it will be acquiring Succession Wealth in particular, an Aviva spokesperson said: “Succession is a well-run business with a proven track record and a strong management team, which will remain in place – this is already a great business.
“The Succession Wealth management team shares our vision of what we are looking to deliver in the wealth market, which makes Succession a good fit with Aviva. Starting with immediate scale will help us deliver the best outcomes for our customers.”
Time to cash in?
Inflexion says the sale of its investment in Succession Wealth to Aviva follows a record period of divestments by the private equity business over the last 12 months.
David Hicks, partner at Charles Russell Speechlys, also refers to how private equity backers have a time horizon for their investments.
“Inflexion has been invested for eight years. They will benefit from the current high multiples available in this part of the market to maximise their return from the growth since 2014.”
Louise Jeffreys, managing director at business broker Gunner & Co, likewise describes the sale of an investment as a part of the private equity cycle.
“Private equity firms raise money from institutional investors for the purpose of investing in private businesses, growing them and selling them on later, ideally generating better returns for investors than they can reliably get from public market investments. For the system to work, the investment must be sold, generally at the point where the target return has been met.
“Considering the financial planning sector, a number of the private-equity-backed start-up consolidators are offering the flagship firms they buy to retain equity, often to be paid out at the time of the second capital event, when the private equity house will exit their investment. So there is pressure both from the private equity investors and the incumbent ‘operating owners’ to get a return, delivered by the sale.
“The original Succession acquisition model included business sellers receiving equity, some of whom may feel they have waited longer than they wished for to cash out.
“Equally the private equity house has been in place around eight years, getting to a top end of maturity for an investor like that. I suspect the timing of this deal will factor those elements into play, and to have been catalysed by the target return on investment being hit.”
The wider impact
Given Succession Wealth’s £385mn price tag, Adam Smith, chief operating officer at Fairstone, another consolidator, has said it would value Fairstone “softly at around £700mn”.
Fairstone, which reached its 50th acquisition in February, oversees £13bn in funds under management for 40,000 wealth clients and with 400 regulated advisers, according to figures from the group last month.
In February the Financial Times also reported that private equity groups Warburg Pincus and Permira were preparing to list or sell Tilney Smith & Williamson.
Brian Hill, head of strategic exits at financial consultancy The City & Capital Group, predicts that there may be more “well-priced” deals over the coming months.
“Private equity firms often look to maximise everything in the business they possibly can, also known as ‘sweating the assets’ and start to manage the balance sheet to maximise their cash position.
“Once they’ve achieved this and returned any debt, they can maximise their rewards and this is when you see private equity selling to next level private equity. Combine this with significant sums raised to buy firms, some private equity firms are under pressure to make deals, raising prices.”
Chloe Cheung is a features writer at FTAdviser
