Deal or no deal? We interview Wealth Holdings’ Norman MacLeod

Norman MacLeod is Head of Acquisition at Wealth Holdings and has his finger firmly on the pulse of M&A deals in the IFA and Wealth Management sectors. In this Q&A, IFA Magazine talks to MacLeod about what’s going on in the market right now as well as getting his practical tips on what works and what doesn’t as businesses head towards exit or acquisition.

Q: Could you tell us about your background, and explain your role at wealth holdings?

I’m a relatively late entrant into financial services, having previously worked in the arts and culture sector for 20 years. After a period working with a national consolidator where I was involved with many acquisition deals, I then got together with some former colleagues, Keith Brown and Debbie Dry and more recently Andrew Smith. At Wealth Holdings, we’ve built a brokerage consultancy business working in the M&A sector with IFAs and wealth managers advising both buyers and sellers. As head of acquisition, my primary role is to be the first person that our potential clients encounter in the market, whether they are a buyer or a seller. We’re working with 30 or 40 buyers, most of whom I’ve introduced to the business. My primary function now is to find willing sellers with sound businesses for those buyers to acquire.

Q: What are the current trends that you’re seeing in the market for buying and selling businesses?

During 2020, as a result of the huge uncertainty caused by the Covid pandemic much of the M&A activity across the sector was put on hold or slowed down. Understandably, people were reluctant to make such commitments while the future looked so uncertain.

For those looking to sell their business, it is usually a once in a lifetime event so they will want to get it absolutely right.

Now that we’re seeing a resumption of something approaching normality, deals that were under discussion over the past year are now completing quickly as confidence recovers. We’re working with people and firms ranging right across the board from very small firms right through to those with huge client banks and billions in funds under management.

We’ve just recently started working with a client who is looking to buy, and they have an appetite for firms with anything up to £1.5bn in funds under management. Whilst it’s difficult to identify specific trends, what we have seen is a notable speeding up of activity within the market. There is also the continued flow of private equity money into the sector, which currently sees that there is tremendous value to be had on behalf of their investors. It’s a significant part and it’s driving activity across the spectrum.

Q: What’s driving those changes?

With the average age of business owners in the IFA and Wealth management sectors being relatively high, inevitably demographics is a factor. There are lots of businesses that are – or will be in the in the not too distant future – looking for buyers. The private equity money sees value in those businesses, I think primarily because of the stickability of their income streams, which can last for many years as it’s underpinned by the building of long term client relationships by advice and wealth management firms. If you’ve got an average income stream that is steady for ten or fifteen years or thereabouts post acquisition, from an investor point of view, that’s hugely valuable.

Q: Do you think that that it is currently a good time for businesses to consider buying or selling?

I think it depends who you listen to. There are some brokers in the market who are doing similar work to us, and who will consistently declare that it’s always a good time or the best time to be selling a business. Of course, like anybody else they need to generate business.

I don’t necessarily think that there is a good or a bad time to sell a business. Just as an investor is foolish if he thinks he can time the market, I think it is similar for those buying or selling a business. For sellers, it is more a question of taking the time and preparing properly and making sure to find the right business to buy the business.

For sellers, it is more a question of taking the time and preparing properly and making sure to find the right business to buy the business. With buyers, similarly, they need time to find the right business for them to acquire.

That’s where we come in and add value for our clients. A good buyer or a good seller can be found at any given point. It’s just a question of finding just the right fit and that takes time and effort. The kind of work that we do with buyers is to help refine what they think they’re looking for. There could be any number of factors that might make life difficult for them post- acquisition. So it’s about being very clear on people’s expansion plans.

Working with sellers for example, we need to find out what their plans really are. What are they looking for? What best suits their clients? What about the staff? What will help them to achieve the best price for the business? These questions must be asked because they only sell the business once.

We work with both buyers and sellers to help them avoid the many mistakes that can lead to poorer outcomes down the line. A transaction is only successful if it’s successful for both the buyer and seller. However, it’s of primary importance for the business’ clients. If it’s not right for them, they don’t stick around. The seller doesn’t then get the full consideration for the business and the buyer doesn’t realise the full value they’re paying for. We are there to ensure that the focus is on client outcomes. Experience has taught us that if we get that side of it right, then everything else follows on from that.

Buyers are usually quite clear about what they want, and a lot what they look for is similar. They want clean, well-run businesses without a history of potentially problematic product transactions on their books. They like to see clean client data. They like a business that will move as smoothly as possible into their own. What they don’t like to see are idiosyncratic ways of doing things. They like things done by the book. So if, for instance, an IFA has been picking funds themselves for clients’ portfolios, that’s not likely to be attractive to a buyer.

There are number of variables which can reduce the value of the business for sellers. We help to guide businesses so that they’re in the right shape for making such a move. Sometimes we come across businesses that are absolutely ready. But often there’s a lot of preparatory work to be done over a period of time to get that business into the optimal condition in order to achieve the best price.

It’s not necessarily a quick thing. We spend a lot of time discussing potential buyers with sellers and talking about the culture, the advisers, the investment proposition. It’s not as simple as just making an introduction to as many buyers as possible and leaving them to it. We help them a lot, doing the deep background research on buying firms and selling firms so that we can do that matchmaking process. That way we can ensure that businesses are introduced only to appropriate buyers or sellers.

That’s where we add real value. I see us more akin to an executive head-hunter operation, as opposed to a High Street recruitment agent looking for volume and a throughput of as many CVs as possible. We go deep into the background detail and will ultimately only introduce a small number of candidates who are all, on the surface of it, a compatible match to each other’s key objectives.

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