Now in its third year, Gunner & Co.’s annual survey of business owners has consistently shown that retirement is the key driver to a change in ownership, with that category increasing its share by 5% in 2023, to a 66% majority. This is unlikely to surprise anyone, given the well-known aging demographic of financial advisers coming up for retirement. The balance of respondents would consider selling to future proof their business, either as a form of longer-term succession planning leading to retirement (17%), realising capital to de-risk (10%) and to a lesser extent selling all or part of the business to open the door to growth funding. However, this route to exit may soon be harder to achieve.
Whilst Gunner & Co. have reported at length about the changing dynamics of the buyer market, including the advent of start-up consolidators from 2020 onwards. They are now predicting a shift in the market. “A number of these start-up consolidators will likely merge, since the fragmented competitive space is making it harder for any one business to grow to a significant scale. This will decrease competition for sellers, lessening choice and altering the demand curve” Louise Jeffreys, managing director of Gunner & Co. predicts.
“The buy & build strategies of many buyers will be reaching a level of maturity, with key geographic locations now filled, which sees less opportunity for sellers to sell ‘hub’ businesses, reducing the opportunity of selling all or part of the business to open the door to growth funding.” Added Louise.
The growing trend of M&A in the market shows no sign of stopping. Gunner & Co.’s survey data show that the number of IFA business owners considering selling or planning their succession in the next 3 years has increased steadily from 60% in 2021 to 62% in 2023, with 42% of respondents looking at succession in the next 2 years.
In terms of the preferred exit route, 74% of the respondents said their preferred succession route would be a business sale (up from 70% in 2022), with management buy-outs being the next favoured route (9%). “Management buy-outs have become more widely popular, particularly with increased popularity in Employee Ownership Trusts. The buyer market is likely to shift over the next 2 years, decreasing choice for vendors, which could have an impact on meeting vendor objectives, which could in turn lead to more internal succession.” Louise commented.
The buyer market has diversified over the past few years. Though large regional businesses dominate the market, national consolidators have become an increasingly popular exit route for business owners. According to the data, 31% of respondents prefer to sell to a large regional firm and 24% of them favoured a large national consolidator which has overtaken small regional businesses as a preferred choice this year. “Many large regional businesses have been acquired over the last 3 years, giving rise to a greater expectation of business alignment within these seemingly smaller players. That said, they often remain more culturally aligned to the business seller, with the added advantage of more proven access to funding.” Commented Louise.
The importance of the role of independence has evolved somewhat over the past 3 years. In 2021, only 8% of survey respondents who were IFAs would have considered a restricted buyer, moving to almost 23% now. “This is possibly because the increased regulatory burden, including consumer duty, is softening advisers’ opinions on working within a predetermined framework for investment propositions.” Louise analysed.
Following on from independence, when assessing a potential deal, client proposition was overwhelmingly stated as the most important factor (54% of respondents) followed by the importance of an opportunity for the team to work on (40%) when asked which two factors were the most important. Deal price, whilst previously holding the top spot for the last 2 years, has fallen to 3rd most important, at 37%.
With a number of large transactions rumoured to be in the offing, and the potential of mergers in the buy & build segment, 2023 is likely to be another bumper year for M&A in the financial planning sector.
Louise Jeffreys is managing director of Gunner & Co, an IFA broker with values based on strong relationships built on trust, credibility and value.
Gunner & Co. specialise in IFA sales, IFA business sales, retiring IFAs and IFA client bank sales.