16th December 2024
The financial advice and wealth management sector is undergoing rapid consolidation, largely fueled by the rising influence of private equity and credit providers. A significant factor behind many major acquisitions is the reliance on external debt, reshaping the market landscape and raising important considerations for business owners.
The Role of Private Credit in M&A Activity
Private credit giants like Ares Management have become key players in funding M&A, supporting at least 12 of the UK’s largest advice consolidators. These include firms such as Mattioli Woods, Perspective Financial Group, Wren Sterling, and Atomos. These companies often depend heavily on loans, which carry double-digit interest rates, to finance acquisitions and drive growth. For example:
True Potential: This firm has leveraged £1.1bn of debt to rapidly increase assets under management from £1.1bn to £32.4bn since 2021.
Amber River: This company secured a £275m refinancing to maintain its buy-and-build strategy.
Perspective Financial Group: Continues aggressive growth through substantial offshore funding arrangements.
Analysis by Citywire indicates that more than £3.4bn of debt is currently held across UK consolidators, with much of it being offshore through parent companies based in jurisdictions such as Jersey and Guernsey. While these borrowing structures allow for scale and rapid expansion, they often come with double-digit interest rates tied to interbank rates like SONIA, which currently stands at 4.7%.
What This Means for Sellers
For business owners considering selling their firms, it is crucial to understand the financial stability of potential buyers. While debt-fueled acquisitions may present immediate opportunities, they also carry risks. High levels of leverage can constrain a consolidator’s ability to reinvest in operations, strain cash flow, and negatively impact client outcomes. Sellers need to assess whether a buyer’s growth is sustainable and if they have a credible plan to manage their debts.
Balancing Growth and Client Care
The emphasis on debt repayment and high valuations has also affected firm cultures, sometimes prioritising short-term profit over client experience. As Stephen Harper, chairman of Attivo, states, “There is so much opportunity in the sector to consolidate, but you must balance it with doing the right thing for the clients and the business.”
This environment raises concerns about long-term viability. Deferred payments and reliance on additional borrowing for acquisitions can lead to difficulties if growth slows or advisors exit the firm. Identifying buyers with sustainable strategies and a commitment to client continuity is essential for sellers.
Strategic Guidance for Business Owners
The UK advice sector remains an active and competitive market, offering opportunities for growth, exit, and strategic partnerships. Business owners navigating this landscape should seek expert guidance. Chapters Capital can assist you in:
Assessing potential buyers: Evaluating financial stability, debt levels, and strategic fit to ensure your business and clients are safe.
Exploring your options: Whether you’re planning an exit, looking for a strategic partnership, or seeking to scale through acquisition, we tailor solutions to your goals.
Navigating the market: With deep industry knowledge, we help you make informed decisions in an increasingly complex environment.
At Chapters Capital, we specialise in financial planning and wealth management M&A. Whether you are considering a sale, merger, or expansion, our tailored approach ensures you receive trusted support at every step. Contact one of our professional associates today for a confidential, no-obligation consultation.