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Soprano chairman predicts rise in JHC type transactions


Last week’s purchase of platform software provider JHC by FNZ is the first of many, says Stuart Dyer (pictured), chairman of Soprano Consulting, an M&A and advisory business working in the financial services sector.

Dyer set the firm up in 2014, having retired in 2012 from buying IFA firms for Close Asset Management and found himself ‘dabbling in consulting’.

The dabbling took off. “I went from…this is an interesting thing to do…to working five or seven days a week,” Dyer says. “We found ourselves in a part of the market which is so busy with so much going on.”

The amount of consolidation in the wealth and IFA space is driven firstly by a demographic issue, Dyer says. “There are lots of principals of small to medium size IFAs who are at or well past retirement age, which is a big driver.”

And of course, the second big driver is the administration overhead for small to mid-size firms, which is causing a great deal more work for them. Dyer cites MiFID II and the Senior Managers’ Regime, which comes in later this year, and also notes an increasing regulatory overhead across the board for the smaller to mid-size firms, as well as the increasing cost and availability of PI insurance.

“Everything is pointing to an exit potential over the next three to five years– we will almost certainly see a substantial increase in acquisition activity,” he predicts.

“The sell side to this is that IFAs have got factors leading them to sell, but there is also a buy side angle, with the emergence of some sizeable consolidators who are well funded and whose business model is predicated on continued acquisition activity into infinity.”

He sees a whole series of businesses buying smaller firms. “What we are seeing more and more is that the mid-market private equity firms are getting more interested in the space. Not that long ago private equity firms were only interested in a sizeable operation, but now mid-market private equity firms specialising in buy and build situations and are looking hard at the IFA market, having seen their larger competitors buy large IFAs.”

In summary, he sees the current situation as a series of well-funded consolidators, backed by real money creating strong demand matched by increasing supply. Soprano is very active in this space.

“We do some introduction work finding people who want to sell and introducing them to buyers,” Dyer says. “But our real skill is project managing transactions and providing guidance to buyers and sellers. And we are most interested in situations where we provide a fuller range of services.”

Dyer comments that a number of large players are growing quickly through acquisition, while the number of smaller players is reducing, concentrating the market. He believes this and other factors will influence the future of platform development.

Dyer sees a change in IFA business models with many IFAs no longer advising on hundreds of funds. “There is a serious move towards more centralised investment propositions and outsourcing and so IFAs are not requiring access to hundreds of funds as they once did– there is more concentration of holdings and this will continue. Further consolidation through M&A activity will make this trend even more pronounced.”

“We saw substantial growth of the platform market that came from the big registration boom from 2000 to 2015, but that has probably slowed a lot. This added to changes in the way that investment advice is structured is bound to have medium to longer term impacts on the traditional platform providers.”

Dyer believes that the platform market generally may now be heading towards ex-growth. “So the new game in town for the platform providers is to snare big players and capture greater revenue from them with a broader service proposition – FNZ is a good example of a provider pursuing this strategy.”

In terms of last week’s deal with JHC, Dyer says there are obvious synergies in terms of the service proposition between the two parties, so finds it a sensible transaction, which is strategically right for FNZ.

“This is a good solid piece of strategic acquisition and there is more coming,” Dyer says. “The acquisition of IFA service businesses is growing and any independent provider of services to this industry is ripe for acquisition.”

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