Anyone anticipating a sedate start to the year may already be surprised by the amount of activity taking place in the financial adviser space. As we expected, in the mergers and acquisitions field, it appears that the move to the new RDR environment has not put any sort of dampener on the appetite of some businesses to either set out acquisitive growth strategies or to announce completed deals.
Of course simply making an announcement of your intention to acquire a large number of advisory firms over the course of the next few years is easily done but somewhat more difficult to achieve in practice – unless of course you are basing your valuations on rather large multiples of profit, recurring income, etc, and in which case you may find firm owners biting your hands off to conclude a deal. However, I suspect that acquirers are being just as realistic in their dealings. We certainly continue to base our valuations on ‘known knowns’ rather than bullish projections.
At Perspective our focus on growing through acquisition as well as organically has not altered simply because the regulatory structure changed with the coming of the new year. Of course, a firm with a strong management team which has put in place all the necessary systems and processes to ensure RDR-readiness is a real positive for any firm, however, when analysing the figures of the business, we will continue to be as scrupulous as always in determining just what the firm is – in our opinion – worth to us.
There appears to have been a spate of acquisition announcements since the start of the new year and some have expressed surprise that firms are selling up so soon into the ‘new world’. The argument appears to be that, having done all the work necessary to make it this far, why would you then (just weeks into the changes) ‘allow’ the business to be acquired.
Firstly, we must not forget that these acquisitions will have been in the pipeline for some time and I suspect would have been concluded in 2012 and merely announced in 2013. Also, the view of those questioning the firms’ motives is a very simplistic way of looking at the situation and there are a whole host of reasons why any individual firm’s owners may seek acquisition.
There can be something of a common misconception that those firms who were bought in the last couple of years did so because they somehow ‘wanted out’ of the sector before RDR and that they were not in a position to put in place all the necessary changes. Clearly, in a small number of cases, this might have been the case however many of the firms we have talked to were looking at the range of options available to them and looking to secure their long-term future within the industry. If they had not found a like-minded acquirer whose interests were aligned with theirs, they would not simply have shut up shop before the end of 31 December 2012. Instead they would have continued their work towards RDR-compliance and perhaps sought out other avenues in order to help them meet their ambitions and targets.
Similarly, now that we are here in 2013, this does not mean that acquisitions will simply dry up because the firms are RDR ready and active. Firms will still be looking at their available options, which is sound practice, with a number deciding that being part of a national group such as Perspective is the best thing for the business. Forward-thinking should not stop simply because a deadline has been reached and passed, and an ambition or achievement met.
We will continue to be active in speaking to firms who are looking to be acquired and supported by a national group with a considerable amount of financial backing and resource in order to help grow and develop that firm. I suspect that those organisations that have been acquisitive in the past will be doing exactly the same. While we are not reliant on purchasing firms to grow, as we may have been in our very early days, we still believe there is much to be gained by looking to bring quality and profitable advisory firms – both independent and restricted – into the Group.
One suspects we are unlikely to see a significant drop-off in M&A activity throughout 2013 and beyond, given that firm owners are unlikely to stop considering their options anytime soon and acquirers – particularly those who have targets to meet – will also be looking to add to their overall offerings.
David Hesketh is group M&A manager at Perspective Financial Group
