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How firms are cashing in by pairing IFAs with buyers

With IFA firm buyout offers rife among nationals and consolidators, so-called matchmakers are moving in by pressurising advisers to consider selling up.

How firms are cashing in by pairing IFAs with buyers

Even the most sceptical IFA must have been tempted at some point by the kinds of offer being made by nationals and consolidators of late.

Standard Life-owned restricted national 1825, for example, has picked up the slack as consolidators such as Bellpenny have slowed the pace after last year’s shopping spree.

The names of firms that will help introduce IFA firms looking to sell to potential buyers may sound familiar: Retiring IFA, Harrison Spence, Capital and Trust and Vines Row are just a few.

Much less well known, perhaps, is another kind of intermediary that groups IFAs together for the purpose of selling them on or floating the combined business at a greater value.

How these businesses target IFAs and connect them with buyers deserves a closer look for the benefit of advisers starting to feel under pressure to sell.

Misguided matchmakers

Director at central London-based IFA London Money, Martin Stewart, said he had been contacted by around six or seven firms so far this year. This included offers to help his firm become part of a larger group of IFAs in one form or another, either through acquisition or merger.

Stewart said some brokers were trying to bring IFAs together to float on the Alternative Investment Market, promising to market them as new brands but allow the firms to keep control of their clients. Meanwhile others simply offered introductions to consolidators such as Succession or private equity funds, having identified their firm as a good match. So far neither option has appealed to him.

‘They say they have done their due diligence on us, and we ask them how they have done that,’ he said. ‘They say they have got the information from the Financial Conduct Authority register, but anyone could have done that. If these people understood our business model they wouldn’t waste their time.’

The approach adopted by these so-called matchmakers, prospecting a large number of firms who may or may not consider themselves ready or willing to sell, has increased as the budgets of larger acquirers have become squeezed, according to SimplyBiz managing director Matt Timmins (pictured). He said these matchmakers were often employed by consolidators.

‘Those organisations can’t afford their own sales teams now,’ he said.

‘They might use a “customer get customer” approach, [but] it’s the same attitude that comes from the consolidators to put IFAs together without working out any synergies, or working out what they want to do. When you dive into it there’s no consistent operating model.

‘I have not yet seen any form of consolidation business that’s still working today for the benefit of its clients. That they have engineered value is great, but most of them aren’t still standing or the advisers have lost value.’

SimplyBiz is looking to launch its own internal acquisition introduction service shortly. It will identify appropriate pairs of firms and get both firms to adhere to a blueprint, harmonising fee structures, investment propositions and client communications ahead of a merger.

Cashing in

Brian Spence, founding partner at consultancy Harrison Spence, said that though acquisition introduction requests were not as high as during their post-retail distribution review (RDR) peak, when unprepared or nervous firms were looking for exit strategies, IFA firm sales still represented a steady line of work.

‘It was like I went to bed one night a consultant and the next day woke up as a mergers and acquisitions guy,’ said Spence.

’The RDR kicked in and it was a free-for-all. Lots of people were trying to take the opportunity to get out quickly because they couldn’t manage the RDR, could not take the examinations or were too old.’

The tactics used by brokers to encourage IFAs to agree to let them weigh up a sale might include highlighting market trends such as decreasing adviser numbers, tightening profit margins and an ageing adviser population.

Managing director of support services Threesixty, Phil Young, said: ‘The market is still awash with mergers and acquisitions brokers.

‘Most brokers are saying: “If you don’t sell tomorrow it’s all going to come thundering down.” That’s the same message everyone has been using for the past 10 years.’

According to Dawn Pearce-Herzberg (pictured above), managing director of Vines Row, a business that advises on acquisitions, her firm is attracting interest in helping match IFA businesses with as little as £25 million in funds under management and £50,000 turnover with buyers.

Typically IFAs can expect to sell their business for three to four times turnover, says Pearce-Herzberg, who predicts groups of IFAs will begin to merge with other groups of IFAs to create larger businesses.

‘There will be a larger number of larger businesses than we have today,’ she says. ‘Consolidators will buy the consolidators, but that doesn’t mean there won’t be a number of really well-run smaller and medium-sized firms that can survive, do well and be around in 10 years’ time.’

With more potential vendors in the market but more acquirers too, there is an argument to say the need for mediation is only going to increase to help advisers sort the good offers from the bad.

‘Firms are getting used to being approached directly,’ said Pearce-Herzberg.

‘They can’t see the wood for the trees. Introducers should be able to find the right buyer and help IFAs understand the differences.’

The next question is whether these matchmakers are conducting enough due diligence when picking potential targets, or are casting their net too wide.

‘There are some that are pickier and some are more direct,’ said Pearce-Herzberg.

‘Because advice is a relationship business I’m not convinced direct mailing works very well. We always arrange a meeting because people want to know a bit about you before they get involved.

‘We don’t fly by night to see where we can get in for a quick win,’ she said. ‘We make sure the due diligence is robust so buyers can target the right companies and know what they have bought.’

Overseas brokers

There are other businesses acting as matchmakers too.

A number of industry figures say they are aware of several foreign companies trying to match up IFA vendors and acquirers.

One overseas firm that is understood to have approached UK IFAs is Australian company Shadforth Financial Group.

Shadforth was founded by bringing 14 boutique advice firms and wealth managers together six years ago. According to one source who is aware of approaches made by the firm, the company is now looking to build on that success in the UK, and has held a number of seminars and talks with the firms it is courting.

Shadforth did not respond to a request for comment.

An overseas company trying to facilitate IFA collectives in the UK would in some respects follow in the footsteps of Old Mutual and Sanlam, which are both based in South Africa and have undertaken their fair share of acquisitions, while Bellpenny is owned by Oaktree Capital, one of the largest venture capital funds in the USA.

Another driver of acquisitions could be a firm like Regency House Wealth Management, which is owned by an accountancy. Regency has acquired IFAs such as West Yorkshire-based Jacobs Financial Group in recent years. Regency is owned by accountancy Cowgill Holloway.

Brian Spence (pictured above) of Harrison Spence helps IFAs set up acquisitions. He used to run an IFA firm called Ethical Financial Limited, until it became insolvent as a result of compensation claims in 2005 after Ethical Financial clients were advised to invest in equity in the firm itself.

He said: ‘Some people will take the view that it’s good to have gone through difficulties to understand what people have to face. Other people will say we are not responsible enough to manage something like this. The majority of people who talk to us say we are the best in the market.’

Whether or not the current acquisitions trend continues might well depend on how good these deals turn out to be for IFAs.   

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