London-based IFA and fund manager One Four Nine Group made two acquisitions as part of its launch; but has no plans to stop there.
It bought Preston-based Charter Financial Planning and Greater Manchester-based Rice Whatmough Crozier in October 2021, deals which brought over £300m ($414m, €355m) in assets under management to the group.
Matthew Bugden, chief executive at One Four Nine Group, told International Adviser that the firm is “looking to acquire at least one firm this side of the festivities”.
“We have got a very strong, ongoing dialogue with a number of firms that want to join our family through 2022,” he added. “We want to grow both organically and through acquisition. It’s difficult to put a point on how many firms we will be acquiring, but we do want to be a national firm.
“Everyone talks about being culturally aligned with your acquisitions, to me that goes without saying. If someone didn’t believe in your vision, strategy, the way you do business and the way you interact with people, then you shouldn’t be buying them.
“Our view is that we want to work with our acquirees. They’re not retiring, they’re staying on.”
No hub strategy
Acquirers in the UK market all approach their M&A strategy differently – some are looking to make a few deals – and others are seemingly trying to buy up the whole industry.
Then, in terms of geography, some firms want to buy companies in different regions to act as hubs – an approach which has been adopted by other IFA consolidators.
But One Four Group said it does not “subscribe” to the hub and spoke strategy “because no one wants to be a spoke, they want to be a hub”.
“We want to buy the right firms and we want them to carry on running those firms but with support from One Four Nine head office,” Bugden added. “We’re not looking to acquire people retiring, we’re looking to acquire firms that have got infrastructure, a location and people. They would typically have between two and eight advisers and their support teams.
“It’s important to us to have a footprint across the UK. But what’s more important is to go somewhere where we think we can add real value to the end clients, and that the adviser we’re acquiring thinks we can add value to their clients. Geography is secondary. The wealth is spread right across the UK. Clients aren’t all in London. There are advisers wherever the clients live or retire to.
“Whilst they might live in Hertfordshire today, they might not be in 10 years’ time. It’s a nationwide proposition by acquiring firms that are the right fit for us and for them, rather than any desires over hub and spoke.
International Adviser did ask Bugden whether the firm has future ambitions for acquiring outside of the UK.
He said: “For the time being, we need to get a foothold in England, Wales, Scotland and Northern Ireland.
“But if you extend that further forward, we may look elsewhere. Where you have higher quality advisers with higher quality clients, because of the nature of the underlying proposition, then it follows that we may have to consider more sophisticated types of advice. Who knows what’s going to happen as the advice industry adapts to the impact of Brexit.”
Scouting professional services firms
One Four Nine Group has a unique strategy in terms of the advice businesses it is looking to acquire.
It is primarily targeting accountancy companies and other professional services firms that own or have a joint venture with financial advice firms, as well as standalone advisory business.
Bugden said: “I think everyone in the financial services sectors, including accountants, are getting older.
“The senior manager and certification regime came in and put the spotlight equally on the accountant. The financial services sector and its regulatory regime is getting more complex. The accountants of this world are probably looking at a way of how they could best serve their client because their needs are getting broader and more complex.
“Accountants will look to divest themselves of their financial services (FS) arm but they don’t know who to divest themselves to. They might be equipped with a corporate finance partner who can do the actual transaction, but actually identifying potential acquirers of their FS firm is tricky.
“We’ve known these accountants for decades, probably even before they formed their FS firm. I think we’re in a strong place because we understand the dynamic that exists in professional services firms. Other acquirers potentially may understand it, but I think we’ve got proven track record in absolutely understanding.”
The newly created firm is also looking at financial advice firms experienced in recommending tax efficient alternative investments or advisers looking to offer this but don’t yet have the infrastructure in place.
“Our experience is in the enterprise investment scheme (EIS) and venture capital space. We understand the advisers that have good knowledge of that very niche part of the advice spectrum.
“We also understand that it is in certain circumstances suitable for certain clients. If you’re a business owner of a financial services firm, you advise on these products for certain clients, and then you sell the business and can no longer offer these products then its a retrograde step for the client offering.
“We believe that the tax efficient space, where suitable, is a good piece of kit for the adviser and the right client.
“It is not for everybody, but we understand that part of the business and we understand the clients for which those types of arrangements suit. There are hundreds of advice firms interested in the tax-efficient space.”
The number of firms in the advice M&A market is rising and it is creating competition between buyers. This means that firms have to stand out from the crowd.
Aside from the usual back-office support, firms that join One Four Nine Group will have access to an adviser toolkit.
Bugden said that the toolkit will be “third-party product solutions that many advisers don’t know exist, or if they do, they don’t have access to”.
He added: “These are unique parts of our offering, which is starting small, but will grow. It will be services such as a probate administration and Will writing. These are things that helps the intergenerational conversation between the older client and their children.
“It is a problem for the market because some advisers won’t know that these services exist. The financial services sector is a massive piece of the UK GDP. In many cases, there’s a lot that exists in the world of the provision of financial support that advisers just don’t have the time to research.
“We have commercial arrangements that enable our advisers to access these when they need to. It helps the adviser cement the relationship with the client.”
Fund management operation
Another way that One Four Nine Group is looking to differentiate itself from the market is its fund management arm.
The IFA company has its own in-house DFM proposition, which is led by chief investment officer Bevan Blair. It will offer active, passive and sustainable model portfolio solutions.
Bugden said: “What does happen in the sector is that acquirers look to buy firms and then decide it’s a good idea to have a fund management solution.
“That is the wrong way round from my perspective. You should build the fund management solution, understand how you believe the clients’ money should be run, then talk to firms that might want to join because they are more likely to welcome this offering. Building that business first is important.
“Advisers are fantastic with their clients, and the need for them to get all of the various fund management solutions out of the way is for a benefit for their clients.
“It’s very subjective. They have a lot of tools open to them to ultimately make the recommendation. When they have a team of people within head office that can do a lot of legwork for them, I think that’s particularly attractive. It is all about money, time and performance.
“Money in terms of the reduced fee for the client, performance because it’s got some history and evidential backing, and it’s giving back time to the advisers to spend with their client.”
Private equity backing
Buying firms is not cheap. There needs to be a source of funding.
One Four Nine Group is backed by private equity firm Copper Street Capital. The PE business has agreed terms to provide “significant capital to support the growth strategy of One Four Nine Group”.
This is becoming the norm for private equity to look at backing acquisition-hungry firms, but why is the case?
Bugden said: “Private equity is attracted to deploying their capital in this sector, probably due to the resilience which has been evidenced by covid and the level of recurring revenues and the profitability that exists in these firms.
“Furthermore, the population is getting bigger, there’s an increasing demand for advice and a reducing number of advisers to give it. There’s an economic tension there that needs some financial stimulus, and private equity coming in enables us to not worry so much about what’s in our bank, but worry more about how we can make the life of the financial adviser and the client outcome better.
“This sector you can only do three things. You could grow organically, be acquired, or acquire. If you’re going to be acquired, then you have options. If you are going to grow organically, then you still need to reinvest your profits every year into whatever organic growth looks like. If you’re going to acquire, you’re going to need a war chest to do that.
“But with acquisitions, you’ve got to have a willing buyer and a willing seller. There are people who are thinking, I need some help running my business, I need some help to find new advisers, I need some help to service my clients.
“They’re not being forced to sell. Their job is to make sure they get the right price but, more importantly, the right acquirer and with the right dynamics.”