The ‘purple patch’ of M&A transforming advice

mergers and acquisitions M&A AZ NGA Paul Barrett financial advice

10 September 2024
| By Jasmine Siljic |
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Two CEOs and a recent report have underscored how the current period of mergers and acquisitions, led by large buyer groups, is redefining the financial advice profession.

A new report from Forte Asset Solutions has examined the current pipeline of M&A occurring in the advice industry. As the operational costs of running an advice practice rises higher, size and scale are fuelling the strong demand for acquisitions, the report noted.

“The current market is dominated by buyers seeking to achieve size and scale,” it explained.

In particular, Forte Asset Solutions acknowledged the emergence of buyer groups in the advice industry providing capital and growth opportunities to smaller businesses.

“These are well-capitalised businesses that can acquire fully or partially with capital, debt and/or equity shareholding and expect a capitalisation event in the future that will potentially provide higher multiples than an individual sale. Forte is aware of at least 10 groups that are operating on this basis.”

AZ NGA is a key example of this, looking to invest in financial advisory and accounting, small and medium-sized enterprises that are focused on succession and growth.

Last year was a highly active period of M&A for the advisory group, as it executed 17 transactions – 13 by its member firms and four by AZ NGA directly. Since it was founded in 2015, it has completed over 150 transactions in total.

Paul Barrett, AZ NGA’s chief executive, recognised the transformative M&A period that the advice profession is undergoing at the moment.

“We’ll look back on this opportunity happening right now in the Australian financial planning market as that moment where the whole landscape changed and the emergence of the next generation of financial institutions – where SME businesses went from being small cottage shops to super firms and big corporate companies. That’s happening now and it’s a fascinating chapter, but it’s one that won’t last forever,” he told Money Management.

“What we’ll see in the next three to four years is a lot of M&A and capital investment. I predict that we’ll look back on it as a particular purple patch that changed things forever.”

A significant deal that is expected to shake up the advice landscape is AMP’s sale of its advice licensees and self-licensed offering to Entireti for $10.2 million. Meanwhile, AZ NGA will acquire minority stakes held by AMP in 16 practices for $82.2 million.

Commenting on the deal last month, Barrett said: “If you want to create something great, you don’t do it by sitting back and looking at the view. You have to seize the day. We are not sitting back watching. We are getting very busy, and we intend to take advantage of every opportunity that is out there.”

AZ NGA, which is backed by €100 billion ($165 billion) European financial services company Azimut Group, is looking to sustain the growth ambitions for AMP’s 16 equity practices and the existing businesses within its network.

“If you take a photograph of the industry today and compare it to 10 years ago, it already looks so different. I think in another three years’ time, it’ll look different again,” he added.

The smaller end of town

Moreover, Forte’s report identified advice practices with under $500,000 in annual revenue as ideal for M&A opportunities to achieve additional scale.

“There is a need for size and scale to maintain or grow profitability. The largest sector of our profession is the sub-$500,000 revenue businesses and we expect to see a lot more M&A activity in this sector. We will see similar size businesses coming together to achieve synergies.”

For example, four advice businesses joined forces in June this year to create Esencia Wealth, led by chief executive Matthew Fenning.

The CEO also spoke with Money Management and noted the period of fragmentation that transformed the advice industry, following the Hayne royal commission and the aftermath of the banks’ departure.

“Now, having gone through that divergence process, it’s a natural evolution to go through a convergence process, which we’re starting to see now,” Fenning explained.

“Advisers are very focused on moving from being a cottage industry to a profession.”

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