New data suggests that now is the perfect time for IFA's to sell

In October we saw a further two PE backed buyouts of IFA businesses: CBPE acquiring Bristol based Clifton Asset Management to return to the market following their sale of Perspective to Charlesbank Capital Partners earlier this year, and Bain Capital's minority investment in Openworks.  

With other PE houses actively looking to follow in their footsteps by establishing buy and build platforms in the sector, conventional wisdom would suggest that the wall of capital looking to consolidate the IFA sector will long support the premium valuations commanded by IFA and wealth management businesses (vs other financial and professional services firms).

At Heligan, we don't think this should be taken for granted.  With most of the growth in IFA platforms happening between 2019 and 2022, we expect the resulting bolt-on activity to be at its peak in 2023, 2024 and 2025 - beyond this, platforms will be focused on driving organic growth and synergies or planning for exit and demand for acquisitions will diminish.

We also think the relative premium valuation of IFA business compared with other professional services firms (accountants, lawyers, insurance brokers) will reduce over time. Investors are already moving into the similarly fragmented accountancy and legal markets, where we believe client relationships (and therefore the recurring nature of revenue) are equally sticky. With accountancy and law firms typically valued at less than 50% of a similarly sized IFA firm, we believe it's inevitable that investors increasingly see value opportunities away from the IFA sector.

If our analysis is correct, valuations will begin to reduce from 2025 and your exit planning should take account of this.