Q: What potential changes do you see in the near to medium term?
It’s hard to know if there will be any drastic changes. I think there’ll be a continued inflow of private equity money because the smart money got in there quickly. But they’re seeing, there are several new private equity backed consolidators in the market who are very busy acquiring businesses. I think that will be attracting other private equity investors, seeing that there are deals to be done and good deals to be done. So I expect that trend to continue into the future, of private equity investment being a major factor.
I think the continued difficulties in the PI insurance market will be a driver for smaller businesses to consider. Owners will ask themselves ‘is this worth my while? I’m spending an inordinate, amount of my time just trying to insure the business. Is this what I want to want to be doing? Things like the FSCS levy and other factors look likely to continue to put pressure, particularly on smaller businesses.
It’s interesting to note however that there are already established and decent-sized advisory firms, maybe with around about half a billion mark in terms of funds under management who are also attracting private equity investment. So it’s not just consolidation vehicles driven by private equity. It’s also smart, savvy, well-run regional businesses which have attracted investment in order to grow either in their current sphere of operations or to go from a regional to national.
We have a client who is a service provider. They are conscious of their client base being relatively small businesses with ageing owner managers who, when they come to sell, it’s quite likely that they will lose that client once the business has been sold. So they’re looking to match buyers and sellers within their own client base in order to defend their business. So that could be platform providers, investment houses, money managers, or it could be other service providers looking to defend their market share.
Another interesting client we’ve worked with had a lightbulb moment about 18 months ago when they realised that there was a slight attrition in their client numbers. Once they’d done some research, they realised that it was down to the ageing nature of their clients. So they asked us to kind of build a type of marriage bureau for their member client firms so that we could facilitate the buying and selling of businesses within their client base. We might see that being a trend going forward as well.
Demographics is also a factor. There will be a lot of businesses continuing to come to market in the coming years I would expect, even if the government does want us all to work longer into our into our dotage. When people reach their sixties, it’s often the case that they’ve had enough of the headaches, stress and general wear and tear that the running, managing and owning a business means – especially if they’re also advising clients. They’ve been working hard for decades and built a business, employed staff etc. They reach a point where they want to enjoy the benefits of this and go and have some fun in life.
It’s interesting that we come across a surprising number of people who have spent their working life in financial planning helping them to plan their futures, yet they haven’t spent nearly as much time planning their own exit and retirement. Of course, there are a lot of smart people running smaller lifestyle businesses who have made such plans with a view to an eventual sale. They’ve organised their businesses over the years to be ready to sell and to attract a good valuation as well as favourable terms for their own exit. Some may want to quit as soon as they can. Others may be prepared to put in another two, three or four years into working in the business in order to realise its full value. Overall, there is a very broad cross-section.
The fact remains that there are some great businesses out there. However, they need experienced help and support to ensure that when the time comes for a change of ownership, that they have the best possible chance of getting the best result for them, their staff and their clients.
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About Norman MacLeod
About Norman MacLeod Having spent two decades as a senior fundraiser in a variety of organisations in the arts and culture sector, Norman made a career change some years ago. Transferring his communication and commercial skills to work in the IFA consolidation market, he was part of a small team that enjoyed notable success completing 50+ IFA acquisition deals over a five-year period.
His role at Wealth Holdings is to identify businesses which could benefit from working with a trusted partner to de-risk their financial futures whilst ensuring continuity for their clients and continuing opportunities for staff. He is always happy to hear from Principals for a no-obligation chat about Wealth Holdings’ proposition and their own aspirations and plans for the future.
