M&A activity in the wealth management sector entered 2022 on a high with experts forecasting this wave of dealmaking to carry on, potentially long term. Not long ago, we wrote about a “rush to complete” deals in the financial advice and wealth management sector. The dealmaking environment has changed since then, but factors such as a high degree of fragmentation, ageing company owners, rising sale multiples and the relentless acquisition strategies of industry consolidators and private equity firms are continuing to generate deals.
Last year, factors such as impending new regulations, pent-up post-COVID demand and, perhaps most significantly, the possibility of significant increases in Capital Gains Tax, were pushing many owners to sell. In 2020 and early 2021, coverage of the wealth management M&A environment was peppered with terms like “rush” and “race”, implying a short to medium-term surge in dealmaking that could slow down as rapidly as it sped up.
However, over a year later, dealmaking in the sector remains robust and looks like it could carry on in this way for the long term. Here, we’ll take an in-depth look at the factors driving wealth management M&A away from the “rush to completion” and towards a scenario in which strong dealmaking activity could sustain for years to come.
Has the urgency vanished?
What are the forecasts for M&A?
What factors are encouraging M&A?
Fairstone Financial Management is among the UK’s most prominent wealth advisory firms and with good reason, as the company’s downstream buyout (DBO) acquisition model has established it as one of the UK’s leading IFA consolidators over recent years.
The DBO model sees Fairstone acquire a minority stake in target businesses and integrating them over time before ultimately completing the acquisition. This method enables the target firms to optimise the value of their business, boost their profitability and grow their client base prior to the acquisition, which can then be completed with minimal disruption and integration risk.
The model has proven highly successful so far, with Fairstone recently reaching 50 acquisitions. Earlier this year, the company announced that it would be bolstering the DBO model, with changes that it claims will help target companies generate overall value equivalent to 12-18x their current profits.
The enhanced model aims to help new and existing acquisitions generate greater long-term value and will see Fairstone provide funding and support prior to completion, as well as capital for target companies to make their own acquisitions. Other features include agreed income and bonus levels for 10 years post-sale and a new profit-sharing scheme.
The move clearly signals Fairstone’s intent to not only continue with its ambitious acquisition model, but to scale it up even further and enhance its offering to potential acquisitions in an increasingly competitive marketplace.
In April 2022, European private equity firm Nordic Capital sought to tap into the UK’s booming wealth management sector with the acquisition of IFA consolidator Ascot Lloyd. The financial advisor, which had previously been funded by Oaktree Capital Management, has over 500 staff at 17 UK locations, more than 20,000 core clients and close to £10 billion in funds under management.
Under Oaktree’s ownership, Ascot Lloyd established itself as one of the UK’s fastest growing IFAs, tripling its assets under management and executing over 80 acquisitions since 2016. Post-acquisition, Nordic Capital will aim to drive this further, focusing on developing Ascot Lloyd’s digital proposition to improve its client offering, increasing the advisor’s focus on sustainable savings and accelerating its organic and acquisitive growth.
Ascot Lloyd CEO Nigel Stockton said the acquisition would “give us substantial new firepower to accelerate our growth, enabling us to increase the ambition of our acquisition strategy and further invest in people and technology to support our organic growth."
Discussing the acquisition, Nordic Capital cited the growth potential of the UK’s wealth management sector, which it said is being driven by greater focus on savings and higher demand for personalised financial advice.
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