Nearly six-in-10 (59%) financial planning firms in the UK are looking to be acquired within the next three years, according to research by M&A broker Gunner & Co.
Activity has been steadily increasing within the financial advisory and planning space, as the firm said that diversification of the buying market has led to bigger deal values and a wider pool of buyers showing interest in the sector.
Some 63% of the 103 companies surveyed claimed that succession planning was the main reason for looking to sell their businesses.
Gunner & Co added that entering an M&A deal years before retiring is becoming an ever more popular trend, with 34% wanting to future proof their businesses, followed by 14% seeing it as a longer-term of succession planning, while a similar number would eye the realisation of capital to de-risk their firm.
Louise Jeffreys, managing director of Gunner & Co, said: “With new entrant buyers offering partial equity purchases, growth funding and more autonomy for the selling business – the M&A market is moving away from the dominance of consolidators we saw a few years back.”
Motivated to sell
According to the brokerage firm, the vast majority of financial planning companies in the UK (77%) would prefer an external sale to a management buy-out (10%) or a local merger (8%).
Jeffreys added: “Mergers, management buy-outs and management buy-ins are notoriously hard to execute, despite often being an aspirational preference for business owners. Whilst they can afford the business a level of continuity, a consolidator-style buyer can’t, they are fraught with challenges around identifying the right successors, agreeing the value and fund raising.”
But most businesses wouldn’t want to sell to a consolidator, as only 43% were open to the option, and 35% favourable to entering a deal with a consolidator start up. Many would rather sell to smaller buyers, 67% would consider large regional firms and 55% a small local option.
“The challenge with smaller-scale buyers is their experience in completing deals and their ability to pay – these factors should not be overlooked,” Jeffreys warned.
The price offered for the business seems to be the most important factor for 64% of respondents, followed by an alignment of client proposition (54%), while client charging structure was the least important point to consider (7%).
Jeffreys said: “Given multiples have consistently risen over the last three years, business sellers are more and more satisfied with offers in the market, further fuelling motivations to sell.”