| UK & Europe | Articles
Not all Private Equity (PE) firms have the same objectives. The traditional view of PE has been that of seeking short to medium term high growth, with the aim of exiting in five to eight years. However, there are PE firms who are considered ‘patient money’ and aren’t seeking those aggressive compound annual growth rates, instead client outcomes are viewed as central to future success. So, what’s around the corner within the wealth advice sector for these large PE-backed consolidators?
One of the key elements for the long-term success of a consolidator proposition is having a consistent management team that can set the expectations for their PE backer. Initial aggressive growth may be appropriate during the ‘build’ phase, but the management team must have a clear vision of what they want to achieve next. PE is a source of finance, and in the better models strategic and operational expertise. The advice business must serve its clients, or the proposition fails to work for the investor and the end client.
The next phase for large consolidators
We’ve recently had an insight into the plans of PE backers wanting to remain in their investments for the longer term. Merging their investments is an obvious option and, at the end of May, Citywire reported that Pollen Street Capital-backed Matiolli Woods and Kingswood are to merge.
For those PE firms seeking to realise their investments, there are more options, and more to consider:
- Sell to another PE firm.
- Sell to another trade buyer.
- List the business on stock exchange.
Each of the above comes with its own challenges.
The better firms will be able to court investment from the next tier of PE. The less good firms may be forced to seek a trade sale. It will be interesting to see if retail banks see the opportunity to buy an established national network of advisers as a way of moving back into the investment distribution chain.
What isn’t in doubt is that PE houses continue to find the UK wealth sector an attractive proposition, with continued scope for consolidation, as over 80% of UK advice firms employ less than five advisers.
Preparing investments for sale
When the PE houses look to sell or float their investments, the advice businesses will be subject to regulatory due diligence, as they will have been when the PE house was considering its investment.
The well managed consolidators will have been working to achieve the following six key outcomes in preparation for this:
- Closing gaps identified in their original due diligence, evidencing that they had an action plan and have delivered on this.
- Integrating firms to align their governance, systems, advice standards, fee structures, and culture, and demonstrating how the firms in the group are now aligned.
- Derisking the business, undertaking past business reviews of high-risk advice to quantify the level of risk and potential liabilities, and pay redress where necessary.
- Completing activity required by the FCA such as the review of ongoing advice services going back to 2018.
- Reviewing how the prudential requirements have changed as the group has grown, and ensuring the business has made the relevant changes.
- Evidencing how the business is meeting the Consumer Duty expectations.
And, following the FCA’s information request for its consolidator review, we can already start to see what it considers to be important.
How can Bovill Newgate help you get to grips with what’s coming down the line for PE backed consolidators?
We’ve advised acquirers on some of the largest deals in the last five years and continue to support a range of consolidators as they integrate.
If you’re looking to sell or acquire a regulated business, our regulatory acquisition due diligence service can be tailored to meet your needs. You can select the full service or, if you’re comfortable completing some elements yourself, just select the areas you require assistance with.
Our Wealth Management team are also supported by our specialist Prudential and Financial Crime teams, ensuring you’re advised by experts in each area you need to assess.
If you want to discuss your acquisition strategy, or the due diligence you might need, get in touch.
First published by Money Marketing.
Get in touch
