As soon as he took over the helm of the company which, to date, runs £238bn of assets, he embarked on a significant efficiency drive.

“Aviva had sold its French life insurance business, meaning we had to extract a very big mandate out of the company,” he tells Portfolio Adviser. “So, I set about outsourcing the middle- and back-office operations in both liquid and private markets, as well as some other non-core activities such as stock-lending.

“We’re now at a point where we’re really scalable. We have turned the business around, we know exactly what we stand for. And now, other asset managers are looking at costs and having to implement these efficiency drives. So, it feels like we are ahead of the curve.”

Versey is well-acquainted with joining firms during periods of significant change. On his first day as chief investment officer at Axa UK in 2008 – and in his first-ever CIO role – Lehman Brothers collapsed.

During his time as an M&A specialist actuarial consultant in the late ’90s, his first job in the City, he was assigned to the Scottish Widows/Lloyds deal, whereby the former demutualised and became part of the Lloyds TSB Marketing Group.

And now, after a period of transformation for Aviva Investors, he is excited to continue to grow and adapt the business.

“This year in particular, we have moved away from our efficiency work,” he says. “We have transformed our front-office and distribution teams, and we have powered up our fixed-income business through the hire of [former Federated Hermes fixed-income head] Fraser Lundie.

“We have been building our quant capabilities,” he adds. “We have brought private equity and venture capital skill into our newly-named Private Markets business, which was formerly called our Real Assets business.

“Our distribution arm in particular has been transformed and we have moved the client-facing proportion of the distribution function from 30% to 65%. [Global head of distribution] Jill Barber has really changed how we focus the business and become more client-led.

“We’ve been very busy but in a really exciting way. We are now operating on a real growth agenda.”

In terms of the fixed-income arm of the business, Versey believes the company has the bandwidth and the capability to build this out significantly.

“Because we run insurance company money, which has a lot of liability matching, we have huge scale in fixed income, but it’s not something we have really externalised to anywhere near the extent we should have done. This is the focus around bringing Fraser in,” he explains.

Read the rest of this article in the January issue of Portfolio Adviser magazine

The agreement, announced yesterday by BPCE — Natixis IM’s parent company — and Generali, will see the launch of an asset manager with €1.9trn (£1.6trn) assets under management.

The parent companies will own 50% each of the combined business, with balanced governance and control rights.

PA Events: PA Live: A World Of Higher Inflation 2025

BPCE CEO Nicolas Namias will chair the board of the new entity, with Generali CEO Philippe Donnet as vice chair.

Meanwhile, current Generali Investments Holding CIO Woody Bradford would serve as CEO, with Natixis IM CEO Philippe Setbon as deputy CEO.

Subject to regulatory approval, the merger is expected to complete by early 2026.

Both parties cited critical scale, an enhanced offering in private assets to meet growing demand, and strengthened global distribution capabilities as some of the factors behind the deal.

See also: BlackRock enters pact with Saba to ‘not seek to control or influence the board’

The two retail wealth software firms have a large footprint in the UK sector, the watchdog warned. 

FNZ acquired GBST in November 2019, and the M&A deal has been under scrutiny ever since. 

In its ‘phase 2’ provisional findings, the CMA said that green-lighting the merger could result in lessening competition within the UK retail platform space. 

“This could lead to UK consumers who rely on investment platforms to administer their pensions and other investments facing higher costs and lower quality services,” the regulator added. 

Fair competition 

The merger would create the largest supplier in the UK, holding nearly 50% of the market. 

Before striking the deal, the two firms were competitors in the space, where customers viewed them as “close alternatives”, the CMA said. 

If FNZ and GBST were allowed to combine, there would only be one provider that could keep up with their offering, according to the watchdog, a firm called Bravura. 

The competition regulator has also set out a list of options available to FNZ to mitigate its concerns, which include selling part or the entirety of GBST. 

Martin Coleman, chair of the CMA inquiry group, said: “The evidence we’ve seen so far consistently points in the same direction – that FNZ and GBST are two of the leading suppliers within this market and compete closely against each other.  

“That’s why we’re concerned that their merger could lead to investment platforms, and therefore indirectly millions of UK consumers who hold pensions or other investments, facing higher fees and lower quality services.  

“We’re now inviting comments on our provisional findings and possible remedies.” 

For more insight on international financial planning please click on www.international-adviser.com

According to Refinitiv Lipper, €125.9bn left the sector in the first quarter of 2020. Against this backdrop, further consolidation among European asset managers would appear an inevitability.

There are plenty of other pressures for the industry.

Fees are under scrutiny as passive managers gain ground and performance remains unconvincing. Meeting regulatory hurdles in the wake of Mifid II has become increasingly expensive.

At the same time, value assessments may be exposing the limitations of active asset management.

M&G recently admitted that three of its major funds provided poor value for money and many other managers may be forced to make similar admissions in the months ahead.

But there are also positive reasons for consolidation: the focus on environmental social and governance criteria is a welcome development for the industry but comes at a price.

Companies that can spread costs can offer better analysis. Equally, consolidation can be a way of accelerating major investment in value-added areas such as big-data analysis.

The differing M&A landscapes in the US and Europe

In the major fund markets of the UK and US, consolidation has been a ready solution to pressures faced by the industry.

There have been mega-mergers such as Janus/Henderson, Invesco/Oppenheimer and StandardLife/Aberdeen; but also significant smaller deals, such as Premier/Miton and Jupiter/Merian as mid-tier fund managers have sought to build scale and fend-off larger, predatory rivals.

There are also a number of larger players still publicly ‘on the table’.

In November last year, private equity owner TA Associates hired Goldman Sachs to explore a sale of Russell Investments, currently considered to be worth $293bn.

Yet, in Europe, consolidation remains piecemeal.

There is plenty of talk and all the same pressures appear to remain in place, but there have been few large mergers across the continent.

For all the discussion of a dramatic reduction in the number of stand-alone fund management firms, there have been no large transactions in Europe within the last 12 months.

So, what is happening?

There are plenty of smaller deals: Federated Investors bought a 60% interest in Hermes Fund Managers for $350m; Julius Baer acquired the remaining part of Kairos IM ($115m).

Spain’s Banco de Sabadell agreed to sell its asset management arm to French asset manager Amundi for €430m. Ostrum Asset Management and La Banque Postale also agreed the merger of their asset management operations.

Yet the killer deal remains elusive.

Amundi is one of Europe’s largest asset managers and has been public about its search for deals.

It has been linked to DWS, Allianz Global Investors, Natixis IM and Generali.

While its deal with Banco de Sabadell’s asset management business is certainly a chunk of change, it’s not on the scale of DWS (€700bn in AUM) or Allianz (€535bn in AUM).

Equally, while merger talks between DWS and UBS Asset Management were greeted warmly by markets, they have, as yet, come to nothing.

How much will Covid-19 change the M&A scene

Why is it not happening? Perhaps things are not bad enough? Certainly, it’s been a benign few years in markets.

While new business flows have been lacklustre, asset managers have still been able to boast growth in assets thanks to rising stock and bond prices.

As such, the Covid-19 crisis may be the catalyst for change.

But Will Riley, co-manager on the Guinness Global Money Managers Fund, said: “Asset management companies tend to be well equipped to weather serious downturns.

“Firstly, they tend to maintain healthy balance sheets with little or no debt. And secondly, they have a flexible cost base, with their main asset (people) being paid less while profitability is lower.

“Assuming a reasonable recovery in broader equity markets post the worst of Covid‐19, it seems reasonable to assume that underperformance on the downside should be recovered on the upside.”

Fund managers have also found a number of other solutions to their problems.

There has been a growth in outsourcing arrangements, for example, such as State Street’s provision of investment management services to Lazard Asset Management.

Detlef Glow, head of Emea Research at Lipper, says fund liquidations were up in the first quarter of 2020 over 2019 as companies get rid of under-performing funds.

Partnering arrangements are also on the rise: in June, Italian investment bank Mediobanca and US fund manager Russell Investments launched their third private markets fund together.

There is also an argument that the really big threat has not yet materialised.

In Asia, fund managers are seeing a major challenge from Big Tech companies.

Alibaba spinoff Yu’e Bao has gone from a near-standing start to 370 million account holders and over £200bn in assets in just over four years, leveraging its strong platform and retail client access.

Should the US technology giants mount a challenge, the asset management industry may need to act with a little more vim to defend their position.

For more insight on continental European investment, please click on www.expertinvestoreurope.com

At the moment, things seem to have slowed down with only a handful of firms still looking to grow “inorganically”.

But that doesn’t mean that M&A has come to a standstill. Far from it.

Ascot Lloyd describes current M&A environment as a ‘mixed bag’

In June, IFA firm Ascot Lloyd announced it had completed six deals in the first half 0f 2020.

And it is still looking for the odd bargain during this outbreak.

Gordon Kerr, acquisitions director at IFA firm Ascot Lloyd, said to Portfolio Adviser sister publication International Adviser: “We’ve had a number of dialogues with brokers who we work with and, in this kind of environment, it’s a bit of a mixed bag.

“And I’ve heard of others that are pulling out of any of acquisitions.”

For Ascot Lloyd, the team will continue to have ongoing discussions with previously identified candidates and also look at new opportunities, he added.

A few weeks back, Kerr noticed a drop off in the volume of inbound queries the firm was receiving.

“But actually, I saw a bit of an uplift in the last few weeks or so in number of referrals which are coming our way.

“We are looking at the things that come our way. We are going to be looking at new deals in the shorter term.”

IWP still on the look out for acquisitions

IFA firm Independent Wealth Planners (IWP) also said it has not stopped looking for acquisition opportunities.

It has completed nine deals since launch in November 2019, with the most recent being financial planning firm Richmond House Wealth Management for an undisclosed sum.

David Inglesfield, chief executive at IWP, told International Adviser that the firm’s strategy has “largely remained unchanged” and “businesses are still showing interest” in the firm’s proposition.

He added: “IWP is still looking for quality firms that share its values. Some companies may be dissuaded from selling due to the uncertainty, but I think more often this is a factor which reinforces the benefit of joining a larger group.

“From IWP’s perspective, we are busier than ever. Our pipeline remains strong and we look forward to welcoming more businesses to IWP soon.

“We are currently working on several acquisitions and will make announcements as and when they complete and staff and clients have been informed.

“We are seeing an increase in the number of sellers exploring their options.”

Markets have kept the M&A market resilient

Giles Dunning, partner at law firm Stephens Scown, said that the “ingredients for M&A in the financial advisory sector haven’t disappeared”.

“Markets have remained remarkably resilient and have rallied significantly since the initial declines seen in late February.

“However, speculation remains that we may see further market adjustments later in the year and this is likely to mean that acquirers will remain cautious.

“I am still hearing of potential deals and a willingness to transact, but the type of offer may be different to suit market conditions.”

How is FCA disruption affecting M&A?

At the start of the outbreak, the Financial Conduct Authority (FCA) said it would only be carrying out necessary regulatory work.

Which begs the questions, could this have an impact on the M&A financial advice market?

“There are a large number of deals going on in this marketplace,” said Ascot Lloyd’s Kerr. “I would expect that to continue and I think that the FCA would want that to continue as well, so that they have a smaller number of firms that they have to deal with.

“They may look at deals a little bit more than they have done, but that’s something that they want to do as an organisation anyway. I don’t see it being a blocker to activity going forward.

“And I haven’t seen any signs of that so far.”

What’s the long-term outlook after coronavirus?

The pandemic is going to have a long-lasting effect on the world and the M&A market is no exception.

So, how will it change?

“I think what we’ve seen in the conversations that we’ve had to date, and that predates my time, is that a lot of people feel their sale is really driven by professional indemnity insurance cover and the increasing costs of serving customers and the impact of Mifid,” Kerr added.

“I think those will continue to be the drivers for sale for the majority of transactions that we go through than coronavirus.

“The organisations that we’ve seen withdraw their potential sales, due to the market and what’s happened in the last sort of couple of months, will look to ride this out and then potentially look to sale afterwards when the market stabilises.

“My view is that the historical drivers of acquisitions being cost to firms will be the main drivers going forward again, and I think the virus impact will be a medium-term impact for organisations, not the long-term driver for exit,” Kerr added.

How to price a business during volatility

One of the biggest issues facing the M&A deals in the advice sector is valuation.

It played a big part in the discussion of the ressurected Tilney and Smith & Williamson merger.

Stephens Scown’s Gunning added: “The biggest issue is valuation because the price of an IFA business is often based on a multiple of recurring revenue or earnings.

“Many investment portfolios will be affected by uncertainty in the markets, making it more difficult to provide robust valuations based on multiples of earnings or revenue.

“We have a widely predicted recession on an unprecedented scale and uncertain stock market conditions.

“Furthermore, while private equity funding was in plentiful supply prior to the pandemic, it remains to be seen as to whether it will still be as freely available for acquirers going forward.

“The M&A market may eventually need to agree on a valuation method that works for buyers and sellers to compensate for market uncertainty and future values.

“In the short term, a buyer could make a depressed offer to take account of the current conditions, but the seller could insist that the deal takes into account any upside in terms of any future rise in value of the business.”

For more insight on international financial planning please click on www.international-adviser.com

Founded in 2014 by John Fleetwood, 3D Investing supports IFAs and asset managers in developing portfolios with a high social impact. Its philosophy – ‘doing good, avoiding harm and leading change’ – is used to identify funds that have expertise in impact investing.

The company also has a 3D star rating system, which currently applies to over 270 responsible and sustainable funds, and is used by fund selectors to create model portfolios.

Square Mile was established in 2014 as an investment consulting and research business, which holds ESG credentials in high regard. It rates funds and asset managers based on their sustainable policies and recently contributed to Portfolio Adviser sister title ESG Clarity’s Responsible Ratings Index (RRI).

Square Mile managing director Richard Romer-Lee (pictured) said: “Responsible and impact investing are now a central consideration for growing numbers of advisers and their clients.

“For many, the potential for contributing to a better society and protecting the environment is just as important as a financial gain. However, it is equally important for investors to be able to quantify the impact for good that their investments have. Through 3D Investing, John has built a highly-regarded centre of excellence for assessing this impact.

“Furthermore, the experience he has gathered over a career dedicated to this field is unparalleled and supports our aspiration of being the market-leading specialists in this area. This acquisition was particularly attractive to Square Mile as it enables us to broaden and deepen our research and services we provide our clients.”

> See also: Portfolio Adviser sister title ESG Clarity unveils digital magazine

Following the acquisition Ethical Money, Fleetwood will join Square Mile as director of responsible and sustainable investing and will work with the firm’s executive committee to strengthen the independent assessment of the positive impact of a fund’s investments.

He said: “I am delighted to be joining Square Mile, as the additional resource will enable the further development of the 3D Investing ratings and bring our services to a much wider market. Our services are highly complementary and bringing them together will create a market-leader in the responsible and sustainable investing market.”

The 3D Investing brand will be retained to identify research and consulting practices which have a focus on impact assessment.

For more insight on responsible investment, please click on www.esgclarity.com

This comes after Portfolio Adviser‘s sister title International Adviser spoke to the firm about its plans in January 2020.

Sterling Trust provides financial advice to individuals and corporates across the UK, and currently employs 48 people, including 22 IFAs advising and managing £1.2bn assets under management on behalf of around 5,000 clients.

The company was founded by Jeff Grantham.

Advisers will continue to receive operational support and supervision from within the existing office network, with Kingswood centrally managing regulatory and compliance, finance, HR and IT responsibilities.

Reviewing a ‘robust’ pipeline of acquisition opportunities

Kingswood group chief executive Gary Wilder said: “This is a transformative transaction for the Kingswood Group, doubling our wealth advisory business and providing us with an opportunity to own a profitable regional financial planning business with built-in expertise and capacity to expand.

“There is also a major opportunity over time to migrate existing and new clients to Kingwood’s extensive and growing range of managed investment solutions on our DFM platform, underpinning the value of a fully integrated wealth and investment management business.

“We have a robust pipeline of further acquisition opportunities in the UK and US that we are reviewing; and we have three transactions under exclusive due diligence in the UK.”

Business acquired for £17.8m

The business has been acquired for a cash consideration of £17.8m, payable over a three-year period.

Some £7.25m was paid at closing and the balance will be paid on a deferred basis subject to Sterling Trust meeting pre-agreed clauses over a three-year period, with the final payment due in June 2023.

An additional deferred payment of maximum £1.78m is payable over the three-year period, subject to targets achieved over that period.

Follows £80m fundraising

In September 2019, the UK wealth firm raised an investment of up to £80m, by issuing irredeemable convertible preference shares to some investors and funds of investment manager Pollen Street Capital.

The acquisition has been funded by Kingswood’s issue of a total of 7.7 million new convertible preference shares, under the terms of its convertible preference share subscription agreement with HSQ Investment, a wholly owned indirect subsidiary of funds managed and/or advised by Pollen Street Capital.

Royal London confirmed on Wednesday it had sold Ascentric to M&G following a “comprehensive strategic review” of its platform business by chief executive Barry O’Dwyer.  

The deal, subject to regulatory approval, sees M&G acquire £14bn worth of assets under administration that Ascentric looks after for its 90,000 underlying customers. Currently around 1,500 advisers use the digital wrap and wealth management platform. 

It also marks the end of an era for Royal London which had steered Ascentric through a thorny replatforming process that cost the life insurance and investment group over £100m in the last three years. 

Positive outcome for Ascentric

Langcat consultant Mike Barrett described the news as a “positive outcome” for Ascentric.  

Question marks over Ascentric’s fate following reports that Royal London had put its advised platform up for sale had been costing the platform business with advisers who would have otherwise used its services, Barrett said. 

But now “not only is the uncertainty gone but the people who have actually bought them appear to be a really good fit.” 

Buying Ascentric solves M&G’s distribution problem

Fundscape CEO Bella Caridade‐Ferreira said the move will help M&G play catch up with other fund groups that have established adviser platforms.

“Prudential has a good reputation and its own platform to distribute its own products, but it was late to the game in terms of an adviser platform with all the bells and whistles,” Caridade-Ferreira said. “Buying Ascentric solves their problem.” 

Barrett agrees the main attraction behind the deal for M&G is leveraging its existing distribution capabilities in the advised space. While its range of multi-asset Pru funds is “very, very popular with advisers” the asset manager did not have an all encompassing financial planning service for advisers.

“That’s where the attraction of owning a platform lies,” said Barrett. “They can start to bring all of that together for an adviser to sit down and present one overall financial plan to their clients.”

‘I don’t know why M&G is a better fit than Royal London’

But CWC Research managing director Clive Waller noted the timing of the sale is curious given Royal London spent over £100m on Ascentric’s replatforming. “I don’t know why M&G/Pru is a better fit than Royal London”. 

Waller said M&G has been “hot and a little less hot on having a platform for over 15 years”. He notes Prudential sold its Fundsdirect platform business to Hugo Thorman which would eventually become Ascentric.  

“It is ironic that they have acquired the very one they started out with but sold,” he said. 

“My only concern is that so much indecision for such an extended period leaves a slight doubt about the will behind any future strategy. Let’s hope such doubts are ill-founded.” 

The deal was approved overwhelmingly at Jupiter’s AGM on Thursday with a 95.04% approval rate compared with 4.96% of votes cast against the measure.

Jupiter chief executive Andrew Formica (pictured) described the support from shareholders as “an important milestone” which “reflects the strong strategic and financial rationale for the transaction”. 

The deal with Merian still remains conditional “on a small number of provisions,” said Formica, including a stamp of approval from the Financial Conduct Authority. 

But he said Jupiter remained on track to complete the acquisition on or shortly after 1 July 2020, adding that the integration of the two businesses had been “progressing smoothly despite the lockdown”. 

Covid disruption was unlikely to prompt Jupiter to rethink Merian purchase price

Jupiter confirmed the tie-up with Merian in mid-February just days before the coronavirus sell-off took hold of global markets.

Both firms revealed massive hits to their assets under management in a joint Q1 trading update in April, with Merian’s assets plunging 30.1% to £15.7bn and Jupiter’s falling 18.3% to £35bn.

Willis Owen head of personal investing Adrian Lowcock said it’s unlikely the Covid disruption would have prompted Jupiter to rethink the price it was willing to pay for Merian.

“Jupiter are not just buying assets under management but also the expertise and skills of the managers and the team that come with the Merian brand,” Lowcock said.

“Their value hasn’t changed much in the current crisis – you could argue skilled fund managers are worth more in the current situation.”

“If anything, bringing the two together and getting the cost synergies and other benefits of scale delivered is even more relevant in a tougher environment,” said Tilney managing director Jason Hollands.

“The key is to execute the integration at pace, drive through the savings and then benefit from the revenues rebounding over time as markets recover.”

Jupiter’s largest shareholder votes against NED appointment 

All the resolutions that were put forth at the AGM were passed by the requisite majorities, Jupiter confirmed.

But it noted “the level of votes cast against” the re-election of director Karl Sternberg which was approved by just 72.43%. 

Jupiter said the result was driven by the votes of its largest shareholder, Silchester, disagreeing with Sternberg’s time commitments on the boards of other investment trusts. Sternberg is also the senior independent director of the £2.6bn Alliance Trust and is a NED for five other trusts including Baillie Gifford’s Monks Investment Trust and the Lowland Investment Company run by Janus Henderson. 

Jupiter said Silchester, which owns a 19.2% stake in the business, “applies a more stringent voting policy on directors’ external commitments than is market practice”. 

“The board strongly supports Karl’s re-appointment to the board and throughout his tenure Karl has clearly demonstrated his commitment to the company and ability to dedicate sufficient time to his duties,” Jupiter said. “The Nomination Committee carefully monitor all directors external time commitments and would take appropriate action should concerns be identified.   

“In line with the requirements of the UK Governance Code, we will continue to engage with our major dissenting shareholders on this matter and provide the required updates on engagement.” 

The Pittsburgh-based bank announced on Monday it was offloading its entire 22% stake, ending a 25-year relationship with the $6.5trn asset manager. 

PNC will sell 34.3 million of its shares via a public secondary offering with Blackrock buying back $1.1bn of shares directly from the firm. It will donate its remaining 500,000 shares to its charitable foundation by the end of Q2 2020. 

PNC first purchased shares in Blackrock in 1995 and is currently the largest stakeholder in the business.  

Explaining the decision PNC chairman, president and CEO William Demchak said the “the time is now right” for the bank to realise the substantial return on its investment, adding that the deal would allow PNC to significantly enhance its balance sheet and liquidity and “take advantage of potential investment opportunities that history has shown can arise in disrupted markets.” 

Move beneficial for Blackrock and PNC

Tilney managing director Jason Hollands viewed the deal as positive for both PNC and Blackrock, allowing the former to bolster its capital position and make acquisitions in its own sector “where the synergy opportunities could be high”. 

“When PNC originally invested in Blackrock, the business was heavily focused on mortgage securities, so a more natural fit with a lending bank than the diversified asset management behemoth it is today,” Hollands said. 

“For Blackrock, I think this is ultimately a positive as it will significantly improve the free float and enable it to diversify its shareholder base,” he continued. “It won’t have any operational impact on the business.” 

Hollands didn’t think the deal had wider implications for shareholder support at other asset managers, noting that many banks have spun off their asset management interests years ago.

“In the near term, like most businesses, asset managers will see profits squeezed as a result of the pandemic, principally due to lower assets under management,” he said.

But he added: “As businesses with recurring revenue models and which can operate remotely, the sector is in a lot better position than most.”

Blackrock’s resilient share price provides good exit point for PNC

Willis Owen head of personal investing Adrian Lowcock agreed PNC’s decision says more about its desire to free up cash for an opportunistic play than Blackrock’s potential as a business.  

“Banks are facing challenges this year and $17bn gives the company the dry powder to be able to protect itself during uncertain times as well as have the capital available to make opportunistic acquisitions,” Lowcock said. 

“Given how well Blackrock’s share price has held up during the crisis it could be a good exit point for a company looking at other areas to grow its business.” 

Blackrock shares are down just 3% year-to-date at $493 a share but the fund group saw its shares plunge 42% during the coronavirus sell-off, which was on par with other larger players. 

PNC planning for ‘sizeable acquisition’

In an analyst note published on Monday JP Morgan said it understood PNC was planning on using the proceeds from the sale to fund a “sizeable acquisition”. 

It added there was no imminent transaction lined up but that speculation around potential acquisition candidates had already begun. 

“The key challenge for PNC is whether it will be able to find a sizeable, attractive enough acquisition to offset the dilution from the sale,” the investment bank said. 

“If the bank has to use most of the proceeds for share buybacks, this transaction would be permanently dilutive. If the recession is prolonged, PNC may have greater opportunity for an attractive acquisition, but banks are better capitalised than heading into the last crisis.” 

Prior to the coronavirus outbreak, there was at least a deal a week completed in the financial advice sector, however news around acquisitions has nearly dried up.

But Jonathan Barrow, director of acquisitions at M&A consultancy firm City & Capital, said that the pandemic has not “fundamentally changed the make-up” of the financial advice acquisition market.

“We are still seeing sellers selling,” Barrow said. “We are still seeing buyers buying. The buying market has however shrunk slightly.

“We have seen some firms who are less risk-averse, pausing their acquisition activity until the full extent of the Covid-19 pandemic has been fully understood.

“The remaining acquisitive firms are seeing this as an opportunity to secure additional assets while the competition is reduced, as they understand the longer-term benefits of acquiring are still there.

“Due to social-distancing requirements, we are seeing video-conferencing facilities being used in place of face-to-face meetings between buyer and seller.

“From there, all due diligence and legal-documentation is being carried out online via secure data rooms. It has been encouraging to see the industry respond in such a flexible and entrepreneurial way.”

‘A significant number of excellent buying opportunities’

The modern world has not experienced a pandemic of this proportion before, with the Spanish flu of 1918-1920 the comparison most often made.

But the world is a very different place.

With the situation evolving daily at the start of lockdown, financial advice firms had to act on the little information the UK government had at the time.

Barrow said that there was an initial period of pause on both the buy and the sell side when Covid-19 first set in.

“We are now seeing more comfort in deals proceeding, naturally with slight alterations to the purchase mechanisms,” he added. “Due to a decrease in the markets, the immediate values of wealth management firms have dropped.

“We are now seeing ‘open-sided’ terms being agreed where the acquirer will adjust the future payments due to the vendor, if the income received from the purchased clients are greater than the figure agreed when contracts were signed.

“In summary, there are still a significant number of excellent buying opportunities, as well as some high-quality acquirers in the market. However, a handful have paused their acquisition activity until the future impact of Covid-19 has been demonstrated.”

How is the FCA coping?

If deals continue to be made, could there be a regulatory backlog at the Financial Conduct Authority?

The FCA said it is not carrying out non-urgent work at this time. But it did not say if processing M&A deals were urgent or non-urgent.

The likelihood is that the FCA will want deals to take place without problems, so then it has fewer firms to deal with in its regulatory oversight.

Barrow said: “As with any business, operational resource has to be deployed to the most pressing areas.

“Whilst additional regulatory focus is currently being placed on the eradication of phoenixing, change of control applications continue to be being processed in a timely manner.

“While this could be subject to change, our advice remains to fully acquaint yourself with the FCA processes well in advance, whilst ensuring all documentation being submitted is complete and accurate.

“Ultimately there will be a decrease in advice deals being completed until the impact of covid-19 is fully understood. This means there will be less change of control applications being sent to FCA in the coming months, which should assist the regulator in managing workloads.”

Once a deal is authorised by the FCA, there are still some issues to take care of during this unprecedented time.

In particular, Barrow flagged that, once a deal has been agreed and contracts have been exchanged, how are clients being informed to ensure they have full confidence in the acquiring firm to manage their assets moving forward?

“Pre-covid-19, this was done via face-to-face meetings with the new adviser in tandem with the exiting adviser,” he added. “With social-distancing dictating that face-to-face meetings cannot occur for the foreseeable future; innovation will be required to overcome this hurdle.

“This could prove to be the most complex hurdle.”

M&A in the advice market after the coronavirus

When this pandemic is over and life starts to go back to some sense of normal, will the M&A market be the same?

“There is no hiding from the fact there will be an impact on the M&A market once we have got to grips with this pandemic,” said Barrow. “Independent buyers have taken a financial hit and they will need to think carefully about how to increase the coffers if they are to be involved in M&A activity post-covid-19.

“Some vendors may have budgeted their retirement around a specific financial figure, determined by the sale price of their business.

“As such, they may decide to defer their retirement until they have reached financial parity.”

But Barrow did mention that some M&A practices may change for the better.

He said that “the industry has been forced into harnessing technology for good”, and that video conferencing has replaced “time-consuming” face-to-face meetings, which is “aiding the efficiency of the initial ‘courting’ process”.

“Vendors are also now able to demonstrate the same market confidence they have always asked of their clients; the markets will pick up, that much we do know,” he added.

“Therefore, we are finding vendors are willing to agree a lower financial consideration now, safe in the knowledge that their future payments will increase in line with the inevitable market surge.”

Words of wisdom for advisers looking to sell in the coming years

Barrow also gave some advice to both buyers and sellers in the financial advice market.

“If you are a vendor and have an exit strategy in mind, then have the confidence to know there are still a substantial number of options out there for you,” he said. “If you are hoping to exit in the coming months or years, then use this time as a period of consolidation to ensure your business is in good shape.

“Pre-empt the impending due diligence requirements by ensuring your reporting system is robust, demonstrable and streamlined.

“If you are an acquirer hoping to purchase a business, use this period to polish your business and get your house in order.

“What is your USP? How streamlined are your onboarding processes? How can you make your business stand out from the crowd?

“Use this time wisely. Markets will inevitably increase. M&A activity will inevitably increase. This is all part of the journey.”

Family office Stonehage Family, which has over £45bn in assets, has snapped up Cavendish’s entire investment activities, including £1bn worth of institutional and professional client portfolios and four Oeic funds, two of which are run by Mumford (pictured). 

The Cavendish International fund and Balanced Income fund, as well as Mumford’s £78m Cavendish Opportunities fund and £75m Aim fund will be rebranded under the Stonehage Fleming banner and sit alongside its existing range of collective vehicles. 

Mumford will transfer to Stonehage along with three other senior members of the fund management team where they will continue to run their respective funds. 

Cavendish CIO Julian Lewis will also join as part of the deal, which is expected to complete on 1 August. 

Stonehage is a ‘different beast altogether’

Fairview Investing investment consultant Ben Yearsley said the deal seems a “strange fit” given Mumford’s background in small cap companies. 

He rates Mumford who he has known for many years as “an excellent small cap and Aim manager” and an “old school stock picker”. 

This seems out of sorts with Stonehage’s existing £11bn investment management offering, which chiefly consists of global equity and multi-asset funds, including the $1.2bn Stonehage Global Best Ideas Equity fund, managed by Gerrit Smit. 

“Stonehage Fleming is a different beast altogether though with the Fleming banking dynasty behind them it’s clearly a quality outfit,” said Yearsley.

“On the flip side there is no negative overlap, which means not having to get rid of managers, change process or style,” he added. 

Paul Mumford ‘never got much traction’ at Cavendish

Yearsley said Mumford “never got much traction at Cavendish” though he notes he was able to grow his funds to a “reasonable size”. 

Cavendish was set up in the 1980s as a private wealth manager to look after the assets of the Lewis family.  

From there the London-based business expanded to look after more institutional and professional clients, including ultra-high net worth individuals and families.  

Mumford joined in 1994, bringing his Opportunities fund, which he launched at Glenfriars in 1988, with him. 

The Cavendish Aim fund was among the top 10 strongest performing funds in H1 2019 though over the past year it has sunk into negative territory (-18.5%) thanks to the coronavirus sell-off. Over three and five years the fund is first quartile, returning 16.6% and 78.1% against the IA UK Smaller companies returns of -3.5% and 25%.

Mumford’s Cavendish Opportunities fund, which sits in the IA UK All Companies sector, has had a tougher time handing investors losses over one, three and five years.