More than three quarters (79%) of advisers include succession planning within their business planning, according to research from Gunner & Co.
The broker and consultancy business said that this suggests consolidation activity is unlikely to slow down for the foreseeable future.
The survey also revealed that retirement continues to be the key driver of a change in ownership, according to 66% of business owners, up from 61% last year.
The remainder of the respondents said they would consider selling to future proof their business, either as a form of longer-term succession planning leading to retirement (17%), realising capital to de-risk (10%) or by selling all or part of the business to access growth funding.
Louise Jeffreys, managing director at Gunner & Co, said: “A number of these start-up consolidators will likely merge, since the fragmented competitive space is making it harder for any one business to grow to a significant scale. This will decrease competition for sellers, lessening choice and altering the demand curve.
“The buy and build strategies of many buyers will be reaching a level of maturity, with key geographic locations now filled, which sees less opportunity for sellers to sell ‘hub’ businesses. This reduces the opportunity of selling all or part of the business to open the door to growth funding.”
More IFA business owners looking to sell
The survey data also found that M&A activity in the market continues apace, reporting that the number of IFA business owners considering selling or planning their succession in the next three years has increased to 62% in 2023 from 60% in 2021.
Almost half (42%) of respondents are looking at succession in the next two years.
Nearly three quarters (74%) of respondents said their preferred succession route would be a business sale (up from 70% in 2022), with management buy-outs the next favoured route (9%).
“Management buy-outs have become more widely popular, particularly with the increased popularity in employee ownership trusts. The buyer market is likely to shift over the next two years, decreasing choice for vendors, which could have an impact on meeting vendor objectives. This could in turn lead to more internal succession.” Jeffreys commented.
Buyers
While large, regional businesses continue to dominate the buyer market, national consolidators are increasingly popular, according to the data. Nearly a third (31%) of respondents prefer to sell to a large regional firm and 24% favoured a large national consolidator.
The latter option has overtaken small regional businesses as a preferred choice this year.
Jeffreys said: “Many large regional businesses have been acquired over the last three years, giving rise to a greater expectation of business alignment within these seemingly smaller players. That said, they often remain more culturally aligned to the business seller, with the added advantage of more proven access to funding.”
While in 2021, 8% of survey respondents who were IFAs would have considered a restricted buyer, the survey found that this has now increased to 23%.
Jeffreys added: “This is possibly because the increased regulatory burden, including consumer duty, is softening advisers’ opinions on working within a predetermined framework for investment propositions.”
When assessing a potential deal, client proposition was overwhelmingly stated as the most important factor (54% of respondents). While deal price was the most important factor for the last two years, this has dropped to third place.
Gunner and Co said that a combination of large transactions rumoured to be in the offing and merger potential in the buy-and-build segment, this year was likely to be a “bumper year” for M&A in the financial planning sector.
