Consolidation has been the name of the game for a long time in the UK financial advice sector.
There seems to be a financial advice company announcing an M&A deal at least once a week currently. But sometimes acquisitions are not always out in the open. Some advice firms have kept quiet about deals or have announced them many months later.
For example, IFA group Chase de Vere revealed the acquisition of Scottish IFA firm Ferguson Oliver on 26 June 2020 during its annual results. But the deal was completed on 18 October 2019.
‘Own the communication’
Victoria Hicks, director at M&A broker City & Capital, told Portfolio Adviser sister title International Adviser: “Some firms prefer to stay under the radar, unless they have a target on monies to deploy or they want to gain the publicity in this way to demonstrate they are active, or improve shareholder and stakeholder confidence.
“This allows them to quietly ‘get on’ with building their presence, whilst not then being inundated with opportunities that are not commercially aligned or incurring potentially negative comments from readers, as articles about acquisition and consolidation can result in polarised views.
“A focus away from the noise and opinions can allow them to demonstrate true success at the time of their choosing.”
Daniel Baade, chief executive at corporate finance firm Dyer Baade & Company, added: “When announcing M&A deals, firms need to consider a number of stakeholders, including clients, staff, suppliers, competitors etc. Some of them might react positive to a deal announcement, others don’t. It therefore makes sense to ‘own the communication’ and do an active announcement of a deal.”
Louise Jeffreys, managing director at Gunner & Co, said: “I believe some business owners are wary of the press, wary of being mis-represented in the press through announcement. Equally when deals are small they will often not be deemed important enough for an individual announcement by a larger buyer, who is much likely to wait until a critical mass is completed and announce multiple deals at once.”
Asset deals more regularly hidden
Baade added that, while the terms of a deal might be kept “confidential”, “almost all deals in the financial services industry will become public knowledge” because regulated firms have to notify change of ownership to the Financial Conduct Authority (FCA), which updates its website.
But he did state that asset deals are more regularly hidden from the public domain. Asset deals happen when only selected assets of a firm are transferred to a buyer, but not the company itself.
Baade continued: “These deals are much simpler and do not acquire FCA approval. Because asset deals are much more straight forward, the transaction costs are lower, and it can therefore be in the interest of the buyer and the seller to choose this option.
“It also allows the transacting parties to select only certain assets for the sale, for example only clients above a certain value. As a result, these deals tend to be much more attractive for the buyer as they can ‘pick and choose’ the assets they want to buy, without acquiring assets or liabilities they put very little value on.”
Small, regional acquirers avoiding the limelight
The number of deals in the UK financial advice market that take place fluctuates every week – but this is only the ones that are reported.
So, how often are acquisitions kept from being published in the press?
City & Capital’s Hicks said: “A lot of the firms we work with keep quiet about the deals they do.
“I would say these are the smaller, regional acquirers who don’t want that sort of attention, as well as the newer entrants to market who wish to make progress on their growth plans, and quietly go about their business.
“Then they inform the press of their plans at a time where their acquisition machine is tried and tested and they’re in the best position for that media attention.”
Gunner & Co’s Jeffreys added: “I would estimate at least 50% of deals are not released to the press. Certainly that would be the ratio of deals we have worked on that are never announced publicly.”
Sellers’ preference
Negotiations can make or break a deal – and sometimes non-disclosure agreements can be put into a contract between two firms to get it over the line.
This could include sellers wanting buyers to keep quiet about the deal.
Hicks said: “It is a really sensitive subject for vendors who are often selling personal relationships. To some vendors it could feel a little crass when the focus should be on integrating for the benefit of clients and staff rather than promoting the completion of a deal.
“Quite often they are not looking at the transaction only as financially motivated, but as an exit and succession plan. To manage this matter sensitively, they may not want clients to feel they are being commoditised. It is important the message of a change in ownership is delivered to the clients first-hand rather than them reading about it, and also the delivery of the message to clients is consistent with that written in the press.
“Whilst the press is more interested in understanding the deal structure and the financials, clients will receive communications demonstrating the ongoing commitment to them and their best interests. The two communication lines could, in the eyes of some clients, contradict one another.”
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