We live in a tumultuous market which — at the time of writing — keeps on rising almost inexplicably.
Even if some of the Magnificent 7 have not quite recovered from last year’s highs, the S&P 500 index itself sits more than 3 per cent above its level at the start of the Iran war, and almost 30 per cent higher than a year ago.
Even the Euro Stoxx is up 13 per cent on the year. For wealth managers this has underpinned growth of assets under administration and, with it, fee growth.
It is clear that wealthtech has the opportunity to add a further step-change to the UK wealth management sector
So what does all this mean for mergers and acquisitions in the wealth management sector?
The sector has its own distinct drivers: it is a fragmented market with an ageing adviser population (the average UK adviser is 52 years old, with a quarter aged over 60), set against a backdrop of growing demand for advice given increasing personal tax and inheritance complexity.
On the demand side, private equity continues to seek deployment of its vast amount of dry powder (up to £2tn, according to some estimates).
Beyond AUA, buyers are really paying for recurring fee income across a homogenous client proposition, strong client retention, clean compliance records and advisory teams that can be retained.
Buyers still have appetite
Increasingly, private equity investors also want businesses that fit neatly into a broader platform and technology stack, where vertical integration can lift margins as well as scale.
Crucially, exit visibility for PE-backed consolidators remains strong.
Recent examples include NatWest’s acquisition of Evelyn Partners at a healthy 15x ebitda, or the continuing inflow of US capital by the likes of Lee Equity (Shackleton), Corient (Stonehage Fleming, Stanhope Capital), Creative Planning (Maseco) and Stone Point (Amber River).
This year is already shaping up as a busy one for mid-market processes, with a good number of businesses already slated for sale — alongside the larger Benchmark Capital platform exiting Schroders.
At these larger sizes, pricing is expected to hold at approximately 10x-13x ebitda, while at the lowest levels of the consolidation hierarchy, the pricing of sub-£250mn AUA firms continues to attract multiples of 3x-3.5x recurring revenue, or 5x-7x ebitda, with no shortage of active buyers.
Consolidation in wealth management has been building for a decade, intensifying during the past five years with 9 per cent of IFA firms having acquired other businesses as of December 2024, nearly doubling from 5 per cent in February 2024.
Interestingly, we are also seeing a counter trend of advisers going it alone, spinning out of larger groups, to provide top-tier customer advice. Many of these businesses will themselves become sellers within the next three to five years.
While still a seller’s market overall, acquirers are increasingly selective, targeting businesses with wealthier clients and less well-penetrated geographies such as the North West and Scotland, and scooping up firms from networks.
Another interesting theme is the rinse-and-repeat strategy of some successful PE firms — for example Inflexion/Absolute, Sovereign/Equilibrium and CBPE/Clifton.
Done well, consolidation and integration allow firms to improve efficiency by centralising technology, compliance and administration.
Ultimately, the economies of scale ought to benefit clients through more competitive pricing, as well as improved advice and customer experiences.
How long will consolidation continue?
The insurance broker market, which led the way for wealth management consolidation, is arguably entering its latter stages of maturity after roughly two decades.
For wealth management, with around 5,000 IFA firms still operating, it is possible we are still only midway through the consolidation cycle, and the runway of deal activity will continue for a good number of years.
Besides, the next battleground is clear: harnessing AI to improve efficiency, cost and operations.
The potential productivity gains across customer relationship management, advice and portfolio management systems are only beginning to be understood, but it is clear that wealthtech has the opportunity to add a further step-change to the UK wealth management sector.
Industry surveys clearly identify technology and AI investment as a priority for financial planning firms, and the most attractive acquisition targets are increasingly those with scalable, tech-enabled operating models.
In the near term, growth, positioning and meeting increasing regulatory and compliance demands remains paramount.
Client referrals remain the primary organic growth lever (outside of market performance), and the quality of aligned financial advisers oriented towards achieving that is critical for attracting the most competitive consolidator bids.
Duncan Chandler is head of financial services M&A at BDO
