Wealth sector M&A, and the opportunities for IFAs and wealth managers
There appears to be no end to the ongoing M&A land-grab underway through the consolidation of the financial adviser market, comprising approximately 28,000 advisers across 5,000 firms.
£137bn of AUM was acquired in 2022, up from £87bn in 2021
Oxford Risk recently reported that £137bn of AUM was acquired in 2022, up from £87bn in 2021. Activity continues to be strong into 2023. Furthermore, we expect to see a number of larger consolidators in the market, looking to sell in whole or part, to trade, or new private equity (PE), over the next 12 months.
Valuation multiples in the wealth sector
These are at a high due to:
- Attractive sector fundamentals such as ongoing wealth generation, aging population, regulatory drivers, strong recurring revenues, and high cash generation
- Consolidation benefits available to buyers such as cost savings, increased margin capture (e.g. Discretionary Fund Management margin), broader service cross-sell, and multiple arbitrage between acquisition and their exit
- The competition for acquisitions from trade (e.g. Succession, Mattioli etc), numerous PE backed consolidators (e.g. Evelyn, Wren Sterling, Progeny, Perspective etc), and new US/UK PEH looking for platform investments
- Consolidators looking to build national coverage
- Bank/debt fund support for the sector remaining strong
It’s not just the multiples that are attractive. There have been cases where buyers are willing to apply the multiples to a highly adjusted run rate EBITDA. When combined with this high multiple, it can lead to exceptional valuations. Some EBITDA adjustments have been increasingly stretched in the last six months, so it’s no surprise to see push back on overly ‘aggressive’ adjustments.
IFA and wealth manager opportunities
Over and above core organic growth and proposition expansion, these include:
- Partnering with a debt provider and/or PE firm to build scale and value through consolidation and realising initial cash out, if required. The variation in acquisition multiples based on business scale and capability, combined with synergy potential, continues to provide opportunity. This can be an attractive way to build value, preserve cultural values, and protect client service levels. There are a range of PE styles and time horizons, with value add for targets provided through buy-and-build expertise, operational and corporate strategy assistance
- Partially selling to a consolidator, with a mechanism to realise further value. This could be achieved through an earn out, or retaining an equity stake in your business, or the acquirer, with the potential of a higher exit multiple, when the consolidator sells
- A value maximising exit to a consolidator, based on embracing all the synergy opportunities available to buyers. This may have an element of deferred or contingent consideration. If there is concern about a significant increase to CGT from political change, it could be an attractive option over the next six to twelve months
A view from Clearwater International
Greg Cant, Partner and Head of Financial Services, added:
“High M&A activity within the wealth sector continues to provide opportunities for many, none more so than IFAs and wealth managers. With such a range of high valuation multiples in this space, often applied to adjusted EBITDAs, strong valuations are not uncommon. Depending on the desired outcome, through working with a debt provider, PE group, or consolidator, the results could be extremely beneficial.”
Talk to us
A version of this article was recently featured in Professional Adviser.
If you’d like to discuss anything mentioned above, please contact Partner and Head of Financial Services Greg Cant, or Senior Associate, Hamish Batchelor.
