Not all private equity (PE) firms have the same goals. While the traditional model has focused on short- to medium-term growth and an exit strategy within five to eight years, a growing number of PE investors are taking a longer-term view.
For these firms, dubbed ‘patient capital’, the emphasis is shifting toward client outcomes as a key metric for long-term success. So, what does the future hold for large, PE-backed consolidators in the wealth advice sector?
A key factor in any consolidator’s long-term success is maintaining a stable, strategic management team — one capable of setting realistic expectations with its PE backers. While aggressive expansion may be the right approach during the initial ‘build’ phase, the real test is what comes next.
A key factor in any consolidator’s long-term success is maintaining a stable, strategic management team
PE may provide capital and, in the best cases, strategic insight. But if the advice business fails to serve its clients, the investment ultimately fails for everyone.
What’s next for consolidators?
Recent developments offer a glimpse into the direction of travel. Some PE firms are opting to remain invested for longer and are now looking at merging assets to achieve scale. One example is the recently announced merger of Pollen Street Capital-backed Mattioli Woods and Kingswood.
Other PE firms, however, are preparing for an exit and must weigh up several options:
- Selling to another PE firm
- Selling to a trade buyer
- Listing on a stock exchange
Each route comes with its own risks and complexities. Stronger consolidator firms may be able to attract interest from larger PE houses. Weaker firms could be left seeking a trade sale. It will also be worth watching whether retail banks consider re-entering the investment advice market by acquiring national IFA networks.
Private equity continues to drive ‘surge’ in consolidation activity
What is clear is that PE firms remain drawn to the UK wealth sector, attracted by its ongoing fragmentation — more than 80% of UK advice firms still have fewer than five advisers. The consolidation opportunity is far from over.
Getting ready for sale or float
For those PE firms preparing to sell or float their investments, regulatory due diligence will be a critical hurdle — just as it was during acquisition. The best-run consolidators are already working towards six key outcomes to make themselves exit-ready:
- Closing gaps identified in initial due diligence and demonstrating delivery on action plans
- Fully integrating acquired firms, aligning governance, systems, advice standards, fees and culture
- Derisking the business through past business reviews and redress where needed
- Completing any required FCA work, including reviews of ongoing advice since 2018
- Ensuring prudential requirements keep pace with group growth
- Evidencing compliance with the Consumer Duty
With the FCA’s consolidator review already underway, it’s becoming increasingly clear what the regulator views as essential. For consolidators and their backers, the race is on to show they are ready.
James Marshall is principal consultant at Bovill Newgate
