Headlines
- During the transition period, status quo is maintained.
- Brexit deal is not seen favourably for either side of the political debate in Britain. There are long-term political implications of the deal and Brexit.
- Economic effect of Brexit has already been negative and that is before the UK has even left. There is still uncertainty that affects the stalling market.
Key challenges
- Wealth management companies find it difficult to grow organically. Measurement of their EBITDA (pre-synergy) suggest that M&A opportunities are present and may provide a different route to achieve the required growth.
- It is often difficult to evaluate what constitutes a ‘right fit’ and how this should be measured, e.g. is there useful MI that can be used?
- Technology and structural reforms are enormous, due to both the competitive landscape and the disruptive impacts of regulation.
- Regulatory history and culture need to be addressed from the outset. The process of assessment is getting longer, which is having an impact on valuations.
- Shifting assets between different platforms can involve complexity, therefore WM firms should consider single-platform in their integration plans.
- Problems related to human dynamics (e.g. power struggles within a WM firm) can derail financial opportunity.
- International mergers create an additional layer of complexity.
Conclusions
- Drivers for M&A business include:
- MIFID II and regulatory concerns.
- Weak integration of a firm’s platforms, systems, and technology, and a desire for centralised platforms.
- Synergy of key metrics e.g. EBITDA, assets on balance sheet, income streams / cashflows.
- Points to address when considering M&A:
- People and cultural fit
- Buy-in, alignment of proposition and strategic fit
- Regulatory background
- Technology and integration
- The UK wealth market is growing and attractive to investors. Historically we have enjoyed 10% compound annual growth of wealth assets, and expect it to grow by 15% next year.
- Key drivers for this growth have been:
- Strong capital market performance
- Inflows to the UK from offshore locations
- Pensions freedoms
- The intergenerational wealth transfer
- However the costs and disruptive implications of regulation, technology and structural reform are enormous and smaller players are moving towards the exit door.
- In the last year, there have been circa 80 significant transactions.
- The (M&A) market is very active
- The classic way to value Wealth Management is to look at listed firms
- There has been a reduction in valuations of IFA’s over time, whereas valuations in WM businesses is more stable.
- WM find it difficult to grow organically. Pre-synergy EBITDA – opportunities are there.
- Reasons for exit are due to Regulations (MIFID II) and Compliance.
- There will be a lot of supply and competition will drive pricing up.
- Market is busy, constant feed of opportunities. Factors to consider when considering an M&A:
- Believe in culture and people – most important factor
- Regulatory background
- Does it fit with strategy?
- Integration – how does this work?
- Buy-in, culture and alignment of proposition – vital points
- Financial planning services are becoming popular
- For every acquisition, 2 or 3 never go beyond the initial discussion
- Platforms – it can be difficult to shift assets. They haven’t considered single-platform in their integration plans.
- Centralised platforms – this is a driver. Small firms realise the need for this so look to larger firms for their centralised platforms.
- MIFID 2 is a driver
- Two forms of power: Positional power and personal power. (Politics).
- Human dynamic can derail financial opportunity. E.g. people live in fear and there is lots of sickness, corridor conversations etc. which change productivity.
- How do you evaluate the right fit? Is there MI?
- International mergers create an additional layer of complexity.
- A lawyer specialising in regulation agreed that the regulatory history and culture needs to be addressed. Process is getting longer and having an impact on valuation.
- Three factors:
- EBITDA
- % of assets
- Recurring income streams
- MIFID II is just the beginning and that platforms and systems held together weakly are a driver for acquisition.
Expert: Stuart Dyer, Founder, Soprano Consulting
Facilitator: Paddy Lewis, Consultant, Sionic
