As if IFA businesses have not been busy enough sifting through the entrails to figure out what business plan they should adopt in future, the industry's support services sector has gone on a shopping spree which looks set to re-adjust a significant number of relationships.
The main players so far are well known on the IT support services side: Capita and United Utilities’ subsidiary Vertex have been on an acquisition trail since the latter half of 2005.
And in this respect, the remaining "business holes" which the two firms may seek to fill with new acquisitions are fairly obvious - such as bolting-on a mortgage sector-facing element - if they are to create true multi-verticle, multi-channel, all-in-one solutions.
Should these growing companies continue to try and build their presence in the market with additional purchases, what we could see is a significant change the dynamics of financial services distribution.
At the same time, there are other possible M&A stories in the pipeline which could contribute to and may signal the much-anticipated industry consolidation everyone has been touting for some time
Intermediaries have to consider this week's rescue of Berkeley Berry Birch ARs by Tenet Group could be the foundations of a particularly difficult pattern which will be repeated by other financial advice networks over the next couple of years. There are many people in the industry who believe there are simply too many networks - particularly in the mortgage arena - which will struggle to remain solvent and within FSA capital adequacy rules, and the prospect of further takeovers is therefore inevitable.
Elsewhere, talk of potential mergers in the life insurance sector - at present it is still rumoured to be possible between Aviva and Prudential but Standard Life's name has cropped up on more than one occasion - has prompted speculation as to whether firms see themselves as able to survive in a financial services market which has declining profit margins but needs to meet investor expectations.
This story is also taking place against the backdrop of a huge volume of M&A (merger and acquisition) activity around the globe. This partly explains why stock market valuations have been driven sharply higher over the past 12 months.
Companies which cut costs and build up cash reserves need to buy faster growth to meet investor expectations, which in turn is driving up further expectations of sales and profitability and helping share prices rise again.
This too means the process Capita and Vertex have entered may yet move in mysterious ways.
Consider, for example, that what used to be called British Oxygen, latterly the snappier BOC, has just been bought for a significant price by a German rival Linde – which is headed by the man previously in charge of Ford’s Premium Automotive Group, and who was previously based in the UK in order to oversee PAG companies such as Aston Martin and Land Rover.
On the face of it, this has nothing to do with personal finance businesses in the UK. Except it has everything to do with what may happen in terms of M&A activity.
German and other European financial businesses are flush with cash after selling off assets such as asset management businesses based in the City, restructuring themselves and benefiting from improvements in premium flows – evidence of the strength of, say, European long-term savings markets comes also from UK-based businesses in the form of, for example, Aviva’s and others’ recent trading figures. This cash pile now puts these firms in a position to re-engage in the UK market.
So, while Capita and Vertex may be calling the M&A shots currently, who is to say some sort of capital markets play may not upend current conventional thinking, and pose yet another challenge to those at the coalface struggling to sort out their own business models, let alone pay attention to the games going on in the City.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Jonathan Boyd on 020 7484 9769 or email [email protected].IFAonline
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