Blog - Merger & acquisitions activity on the rise for smaller IFAs
Thursday, 14 September 2017
The landscape for Independent Financial Advisors (IFAs) has changed in recent years and this has set the tone for an expected flurry of corporate transactions in the market. Merger & acquisition (M&A) activity amongst smaller IFA firms is anticipated to rise substantially over the next two years, whilst transactions involving the larger firms are also expected to gather pace as the industry looks to consolidate.
Why the increase?
One driving force behind this are owners from the baby boom generation looking to sell up so they can part or fully retire. We should therefore see a steady stream of IFAs available over the coming years. Couple this with productivity and technology gains, and this creates a ruthless, fast-paced market where inefficient advisors will be squeezed out.
In addition, recent regulatory changes have played a prominent part in advisors looking to sell up. The Retail Distribution Review (RDR) now requires far more compliance from IFAs in the way they conduct their services. The industry regulator wants to create a more transparent and fairer system for the advice clients receive and to make sure it comes from highly trained professionals. In turn, this makes IFAs an attractive business proposition as they will already have put their houses in order.
What are sellers looking for?
Whilst cash is key to any owner disposing of their business it’s worth noting the strong relationship and wellbeing IFAs have with their clients. Advisors therefore want to pass on their firms to those who can continue to provide a high level of client service and this is often a major factor for business owners when considering a sale. This can even be more important to some sellers than financial return, therefore acquisitive firms should demonstrate their client care.
What are the opportunities?
The anticipated market consolidation has been demonstrated by a number of successful giants in the sector, such as Bellpenny and Succession, who have generated a track record of acquiring and integrating smaller firms without skimping on service and returns offered to clients (source: FT adviser).
At a time when many IFAs have gone through sound restructuring to appease the RDR, it gives larger firms the opportunity to acquire attractive client bases at realistic values. Wehave seen this first hand, successfully assisting with the sale of Waveney Mckenna Limited, a two branch IFA, to the national player Lucas Fettes & Partners.
Many smaller firms are having to subcontract out a lot of the new legislation requirements at substantial cost, therefore organisations with larger resources can immediately generate savings through acquisition. Furthermore, this provides an opportunity for the IFA powerhouses to merge acquired funds with their current portfolios to generate better returns.
By taking into account these recent developments and with IFA businesses estimated to have risen in value by around 8%last year (source: International Adviser), it’s clearly a prime time for IFA owners to take their businesses to market.