Financial advice firms are continuing to be snapped up, according to a report from NextWealth on aggregators and consolidators in the IFA market.
The report said acquisition activity has nearly doubled in the last few years, rising to 101 deals in 2022 from 54 purchases in 2021.
The research also found that more than £26bn ($32.2bn, €29.5bn) worth of assets under management was purchased in 2021, rising to over £48bn in 2022.
This is an increase of 85%.
‘Pacman-like’ appetite
Heather Hopkins, managing director of NextWealth said: “We’re seeing an almost ‘Pacman’-like appetite for advice firms, with over 160 acquisitions announced over the last three years.
“Based on the rate of acquisitions already to 1 March this year and our interviews with acquirers, we expect acquisitions this year to remain consistent with the rate seen in 2022.
“Over the last two years, multiples have typically fluctuated between 3-3.5 times Ebitda.”
Consolidation of advice acquirers
The report also found that the firms which made the most acquisitions over the last three years were Perspective Financial Group and Fairstone Group, which made 20 and 13 purchases, respectively.
Kingswood and Progeny also made a substantial number of acquisitions over the last few years, mainly in 2022, and Atomos (formerly Sanlam) added over £1bn in assets from eight acquisitions last year. Mattioli Woods made a number of acquisitions in the three-year period analysed, but none since 2021.
The report also said that the consolidation of advice acquirers is also expected this year.
Hopkins added: “Smaller private equity companies are more likely to offload holdings to reduce concentration risk. We expect a private equity-backed consolidator to be sold in the second half of 2023, potentially setting off a wave of consolidation of acquirers.
When looking at this subject, it’s important to recognise the distinction between consolidators and aggregators. Consolidators intend for client assets to be moved to the acquirer’s platform and investment solution post-acquisition. They often offer attractive buy-out options for financial advisers looking to exit the market or retire.
“Aggregators are motivated by growth, either for geographic expansion or increased scale. These firms allow advisers to remain independent and support acquired advice firms to grow under the banner of the acquiring firm. What is interesting from our latest research is that all firms are looking for scale and cost efficiencies.”
