Consolidation in Scotland’s independent financial advice sector is showing no signs of slowing.
Our corporate lawyers are advising a growing number of Independent Financial Advisors (IFAs) on transactions including mergers, takeovers and management buy-outs.
Dentists and veterinary surgeries are among the sectors which have seen significant consolidation in recent years, with larger interests - frequently backed by private equity investors - broadening their portfolio and reach by taking over smaller rivals, in traditionally highly-fragmented sectors.
Nicholas Howie, a Partner in our Corporate Law team, believes consolidation among IFAs shows no signs of slowing - with advisor demographics and changing regulatory demands behind some of the opportunities emerging.
Nick said: “As a firm we have worked with more IFAs involved in consolidation in the past year as we did in the previous 12 months - and our understanding is that we are not alone in experiencing this.
“There are various factors at play in why we are seeing this, with a significant proportion of IFA businesses are small firms or self-employed IFAs.
“One is the age profile of many working in the industry. With years of experience and a solid client base, there are potentially greater benefits to them in reaching a deal to have their practice continue rather than wind it down.
“Changing regulatory requirements - and the need to keep pace with those - are also playing their part. That can be both for those who may have been looking towards retirement in the near future in any case and those who consider that meeting compliance demands may be more efficient as part of a well-resourced larger entity.”
Looking at the wider picture in the sector, Nick added: “In many ways, it feels like the consolidation we are seeing is natural. There are both IFAs looking at the next stage in their lives and those looking to increase their market share and achieve economies of scale. On both sides of the deal, the opportunities can be mutually beneficial.”
For owners or shareholders weighing up whether to market their business or respond to an approach, Mr Howie advises that the starting point in the journey should be to ensure that your own house is in order. That can be in terms of both general administration and in having up-to-date financial information.
“Both parties will want to do their own due diligence. Each is seeking certainty in different ways and will be looking to build ongoing future relationships. Ensuring you are compliant with relevant regulations, for example, and having management accounts to hand is helpful,” Nick said.
“Each business is unique and it is important that advice is tailored to specific circumstances. Expert advice can make a transaction smoother and faster for all parties.”
Previous research across the UK has shown a sharp increase in deals to buy IFAs.
In many cases, private equity investors see an opportunity to acquire IFAs as part of their growth strategy, creating a situation where a host of smaller IFA businesses are consolidated under the umbrella of a single group.
Larger companies often add the consolidated enterprise to their business and leave the daily management to local operators.
