Giles Dunning: Expect no slowdown in advice consolidation market

There's one undeniable fact in the financial advisory sector right now: once-rare mergers, acquisitions and consolidations are now practically monthly events.

What started off slowly has ramped up significantly in recent years - whether it's AFH, acquiring the assets of Monopoly Financial Consultants in 2018 (one of 16 acquisitions that year); Fairstone acquiring Glasgow-based IFA Professional Partners; Succession's double acquisition of Accountants Financial Services (Scotland) and H&L Financial or the most recent purchases of Lighthouse (June 2019) and Prescient (January this year) by Quilter, acquisitions have come thick and fast at multiple levels.

With so much activity already done, the obvious question is whether this trend can possibly continue - especially at the same pace - throughout 2020 and beyond. And the simple answer is ‘yes'.

In fact, there's a perfect storm that only looks set to continue. Greater regulation has brought about increased cost burdens, and this pressure is exacerbated by rising professional indemnity insurance premiums.  This means business owners have more reasons to sell than ever. And, it will be reassuring for financial services business owners to know that, at the same time as they are looking for an exit, the one thing that's remained attractive is the value of financial services firms - which, on the whole, has remained constant.

In short, regulation, economic disruption and the ease with which owners can sell will help to prompt the continued acquisition of businesses.

Moreover, many business owners are looking to retire and there is no shortage of consolidators ready to facilitate this via an acquisition.

Funding still plentiful

But what will really fuel continued acquisitions is that far from the funding running out, it is still in plentiful, if not in increasing, supply. Access to private equity has been a recent stimulant that will only continue, especially as Brexit uncertainty has diminished to some extent and there is now a stable government.

What we will continue to see is both activity at the lower end of the market - activity which, in many cases, focuses on adding clients and funds under management ­- but also larger deals as firms eye up strategic tie-ins - or vertical integration.

Consolidators will seek to control as many areas of the client offering as possible by buying firms with specific specialisms. Moreover, at the larger end, we are seeing competition between acquirers.  A recent example is Rathbones and Tilney with both expressing an interest in Smith & Williamson (wealth manager, Tilney, eventually secured a deal to acquire Smith & Williamson last autumn).

Regulatory intervention?

What we won't see - I don't think - is any major intervention from the regulator, in the short term at least.  

Whilst scrutiny of change of control applications has been on the rise (inevitably leading to delays on some transactions), so long as there is no evidence of client detriment, it seems unlikely in the imminent future that the FCA will step in to halt the wave of consolidation.

For high-quality firms looking to be acquired this year, 2020 could be a great opportunity. If they are able to present themselves well, there is a good chance of generating interest.

Giles Dunning is financial services mergers and acquisitions specialist and partner at law firm Stephens Scown

• Tweet  
• Facebook  
• LinkedIn  
• Send to  

• Topics
• Your profession
• Giles Dunning
• Stephens Scown