The last six months has seen an increase in the number of M&A transactions in the Scottish financial services market, with developed and mature Independent Financial Adviser (IFA) firms and businesses taking the opportunity to consider their succession plans, and ultimately exit.
Certain deals have involved two or three principal financial services firms who employ a number of advisers and paraplanners. Typically they had developed businesses with considerable funds under management (in region of £150 million on average) and recurring income to attract a range of potential acquirers, most of whom have been consolidators.
The enterprise value/price being offered by the key players in the market, many of which are headquartered in England but with an existing infrastructure in Scotland, is usually based on a multiple of recurring income, and the payment made a mixture of cash and share consideration, usually 50/50, with a requirement to retain clients for a certain number of years.
Offers can vary depending on negotiation prior to deal execution and it would be prudent as a seller to consider the options available in the market, and to negotiate for the best deal price and structure.
As a seller, the exit strategy of the consolidator is of significance especially where 50% of the purchase price has been satisfied by way of shares in the consolidator itself. A listing or a trade sale would theoretically realise the value of these shares held by the sellers.
Notable deals in the Scottish market include the acquisition by Succession Group of two central belt IFA firms, Accountants Financial Services (AFS), owned by Paul Scarff and Alun Evans, and Independent Advisers Scotland (IAS), comprising of Alistair Creevy and Fergus Muirhead. AFS Edinburgh has become the Edinburgh hub for Succession, and IAS and AFS in Glasgow will relocate into the new Glasgow hub in the city centre.
The propositions and acquisitions team at Succession Group, headed by Corporate Finance Director, Paul Morrish, has been active in speaking to many firms in Scotland including in Edinburgh and the north of Scotland, with the intention of building up hubs which have been established in Glasgow and Edinburgh already. The expectation would be to set up in the north of Scotland shortly.
Succession established its Scottish presence in 2012 with the acquisition of Campbell Dallas Financial Services and subsequently acquired on average 12 IFA businesses a year from 2014 onwards. In 2016, Caledonia Financial Planning, owned by Alan Craig, was also acquired.
Another high profile transaction with larger funds under management was the announcement of the acquisition, subject to FCA change of control consent, of TCAM in Edinburgh by London-based fund manager 7IM. In addition, the acquisition of Speirs & Jeffrey by Rathbone Brothers has just been announced in a deal worth £104 million.
Other consolidators in the market include St James’ Place and Fairstone, as well as 1825 owned by Standard Life, who have a different post acquisition offering than others.
The motivation for all the deals and consolidation in the financial services market are due to a number of factors including increased regulatory constraints (introduction of MIFID 2) and the compliance and HR burden on principals who are taking the opportunity to realise value in their businesses and spend more time focusing on their client base.
The past two years have brought a degree of economic and political uncertainty and the next few months will see that uncertainty continue with Brexit negotiations still to be concluded.
This, together with the added costs and burden of new regulatory compliance, will undoubtedly have an influence on when and where investments are made, and the decisions on whether firms see mergers and acquisitions as the best route to sustainability and growth.
However, the indications are that the next six months are likely to see further consolidation in this sector in Scotland.
Michael Currie is a Corporate Partner at Aberdein Considine