What do IPOs mean for the future of platforms?

Platforms’ business models are an important consideration under financial adviser due diligence so what do a recent spate of IPOs and planned listings from Transact, AJ Bell and Nucleus mean for the nascent market?

What do IPOs mean for the future of platforms?

Integrafin, the parent company of investment platform Transact, first announced its plans to float in January and this month it was priced at £650m when it was admitted to the London Stock Exchange (LSE).

Transact has £29.7bn of funds under direction, serving more than 150,000 clients on behalf of 5,100 financial advisers.

Meanwhile, AJ Bell, which has a direct-to-consumer (D2C) and adviser proposition, confirmed on Sunday it had hired an advisory firm to explore an IPO on the LSE, while Nucleus, which has £13bn assets under administration, is also rumoured to be eyeing a listing.

Next Wealth’s managing director and founder Heather Hopkins says she has long been saying there will be further consolidation in the platforms space and listings could ease that process.

“Transact’s float set a price for that business, which helps to define a price for other platform businesses too,” Hopkins says. “And the fact investment banks have been crawling all over platforms should naturally lead to more M&A activity.”

She says platforms looking to IPO is a sign of a “healthy and maturing market”.

CWC Research founder and platform consultant Clive Waller said in theory IPOs could make industry consolidation easier, but in reality consolidation is a “financial nightmare”.

Nucleus & Transact are “very much adviser favourites”, according to Waller, while A J Bell has “fallen back on service and functionality and majored on D2C”.

Distraction for management

Mark Polson, founder of financial services consultancy The Lang Cat, argues that there are “lots of risks” that come with the IPO process, predominantly the fact that a business concentrating fully on its IPO will find it difficult to concentrate on other aspects alongside.

He says: “There may be a few bumps in terms of management attention along the way. There is also a risk that the business is bought or largely bought by new owners of which the supporting advisers don’t approve.”

Fundscape’s chief executive officer (CEO) Bella Caridade-Ferrira says large investors could buy up big stakes in the business and use them to force voting decisions, gain seats on the board or force the company to overturn decisions.

Another risk could be that the stock has been overvalued and its price falls after listing never to recover again, she adds. “However, this is exceptionally rare.”

“Companies and their advisers are pretty good at gauging demand, evaluating the business and pitching the price right.”

Despite the risks, Hopkins says Transact handled their IPO with “aplomb” managing the business and the listing in tandem.

Transparency

Hopkins says that she doesn’t think publicly-listed platforms will set the firms apart as advisers will always need to consider the financial stability of a platform as part of their due diligence.

She argues that while publicly listed companies will need to disclose detailed financial information, potentially giving advisers a “better window into the financial health of the business”, that ownership structure alone won’t offer a competitive advantage.

However, Caridade-Ferrira says a public listing allows the company to raise substantial amounts of cash and expand the business.

“Being listed is a good thing for a company since it’s now scrutinised by the market and is held to higher standards of transparency and conduct,” she says.

Polson says that although an injection of capital is handy if it can be used to provide “new improved stuff”, in general the IPOs should be neutral for advisers.

Waller has a similar attitude.

“Fidelity are private, Vanguard are mutual. So what?” he said.

“Advisers have loved Nucleus and Transact as private companies. What will change other than share price volatility.”

Why now?

Polson says that lots of companies have been thinking about listing for a while, but now important pieces of regulation are out of the way.

“First, pension freedoms, Mifid II and to a lesser extent GDPR are all done and either in process or finished as developments.

“That’s a huge relief in terms of stress on these businesses. Capital is available, and it feels almost like it’s been stored up waiting for the shackles to come off.”

Meanwhile, arguing that we’ve got “quite enough” platforms for now down the IPO route, he adds that all three [AJ Bell, Nucleus and Transact] are admired as “good businesses with strong management and clear propositions.”

“Lovers gonna love and haters gonna hate, but in general advisers we speak to find positive things to say about all three.”

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