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True Potential sets out £1bn valuation case

National advice firm True Potential is targeting a valuation of £1 billion as it touts bidders for its sale process, New Model Adviser® has learned.

True Potential sets out £1bn valuation case

New technology, in-house funds and rising adviser numbers make national advice business True Potential a £1 billion business, according to an investment memorandum the company has sent to potential investors.

New Model Adviser® understands the company has positioned itself as a technology business in a document that also said it can double profits to £50 million this year.

Last month Sky News reported True Potential had appointed Perella Weinberg Partners to manage a bidding process from interested investors. 

The two largest shareholders in the firm are managing partner David Harrison (pictured), who according to Companies House documents owns 35% of shares, and US private equity firm FTV Capital, which owns 27%. The rest of the company is owned through its adviser partners.

One source New Model Adviser® spoke to said the firm is making the case for a £1 billion valuation to investors based on pitching itself as more of a technology company, similar to Transact, which currently has a market capitalisation of just over £1 billion after parent company IntegraFin floated earlier this year.

The source said an information memorandum sent to prospective buyers highlighted how True Potential will gain a greater share of the value chain by moving to its own in-house technology. Earlier this year, True Potential announced it was moving away from its platform technology partner SEI to build its own in-house platform, which incorporates blockchain technology.

 The investor document also highlighted how True Potential will gain greater scale with its in-house funds. It said these funds will gain higher margin as they scale up. According to its 2017 financial statements, True Potential’s own Wealth Strategy fund range (which is managed by a mixture of external and in-house managers) has reached £4.6 billion in assets.

 

A £1 billion company?

If True Potential does hit £50 million of 2017 profits, its target valuation of £1 billion would be on an earnings multiple of 20. This compares with platform Transact’s 2017 pre-tax profits of £37 million on its IPO valuation of £650 million, an earnings multiple of 17.5. Transact, which owns its own technology, has since risen to a market capitalisation of £1 billion.

Whereas St James's Place (SJP), another vertically integrated advice business, made profits before tax of £342 million in 2017 and currently has a market capitalisation of £5.6 billion, giving it an earnings multiple of 16.3.

By comparison, advice business Frenkel Topping reported pre-tax profits of £1.9 million in 2017 and has a market cap of £20.4 million – giving it an earnings multiple of 10.7.

One source New Model Adviser® spoke to said they expect a company like True Potential to be receiving a multiple of around 12 times earnings.

‘I can’t imagine in this world anyone will go over 15 times EBITDA (earnings before interest, tax depreciation and amortisation),’ the source added.

 

True Potential is also telling investors it will be able to increase its revenues through adding to its adviser numbers. As of 2017, the firm had 481 restricted advisers within its national advice business, True Potential Wealth Management, and 666 independent advisers using its compliance and technology network True Potential Adviser Services.

Finally the vertically integrated business is making the case to potential bidders that it will increase its profits to £50-£55 million in 2018. This would be up from £24 million for 2017.

A True Potential spokesman said in September: ‘2017 was an exceptionally strong year for True Potential and that performance has accelerated throughout 2018, in an industry that is also growing fast. It is inevitable that there would be interest in the company.

‘True Potential has appointed Perella Weinberg Partners to consider and advise on the domestic and international interest that has been shown in us.’

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