Advisory firms are awash with cash and should use the current opportunity to buy up good quality competition, a study by IFA analysts Plimsoll Publishing found.
The research looks at the fortunes of 1379 IFA companies and found there are 370 which would make good strategic acquisitions. These companies are operating in the growth areas of the market and are all extremely profitable, the study says.
Plimsoll's report found the driving force behind future acquisitions in the market is a group of 892 companies who, over the last few years have built up a stock resource of cash, putting them in a very strong position.
David Pattison, senior acquisition analyst, comments: “There is absolute evidence that the rich are getting richer as the gap between those making massive profits and those missing out has widened in the last few years. There has never been a better time for these dynamic companies to splash the cash.”
However, although 2008 is the perfect time to consider an acquisition, the report suggests, it also says the profile of acquisition needs to change.
Pattison explains: “For years, acquisition activity in the independent financial advisers industry has been driven by distressed fire sales. Acquirers have been reluctant to invest heavily, instead they have been content to snap up bargain basement companies often getting bad deals, paying peanuts and getting monkeys. This attitude needs to change.
"What our report suggests is that companies need to look at the wider strategic picture and spend their money wisely.”
He says having the resources to buy one of the 370 powerful players would be ideal as the buyer would take a strong adversary out of the market immediately, and it will instantly be generating profitability.
“The next step is then to focus your attention on the 147 companies we have identified who are failing anyway, pushing them out of the market. This may sound harsh, but if the industry is to develop and evolve then there will need to be casualties. Our latest study shows the candidates least likely to survive 2008 are pretty obvious,” Pattison adds.
The new analysis is aimed at companies needing an insight into the acquisition activity in the UK Independent Financial Advisors industry, or those looking to find top prospects in the market. Copies are available from Plimsoll Publishing priced at £350; readers can claim a £50 discount. Call Clair Sherwood on 01642 626422 or e-mail [email protected]. Visit www.plimsoll.co.ukIFAonline
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