Private equity wants its slice of the pie more than ever before

For anyone who was unsure whether this interest in the market was a one-off or whether it was a real trend, the publication of the Echelon Partners report last year should have been conclusive evidence: private equity likes this sector.

With private equity involved in two-thirds of the deal activity in this sector, and with that interest having continued into this year, you could say that private equity is here to stay.

The interest in asset management should not really surprise any long-term watchers of the private equity market, as it has a number of hallmarks and factors that make it look like a sector ripe for interest from private equity including:

• A relatively fragmented market with numerous good-quality businesses available that could be consolidated and brought together for efficiencies and scale;
• A good 'moat' for each business as, given the often personal nature and relationships involved in advising on personal wealth and assets, clients are considered 'sticky' and so there is often a good recurring, loyal client base;
• A number of owners looking at succession planning and perhaps seeing an exit of this sort as being an attractive option;
• Valuations being as high as ever, given the increased interest in the market and the realisation of what a good profitable sector this can be; and
• Interest in the UK market generally – especially given the activity in the US market to date making it harder to find good-quality businesses at good prices, leading to a number of firms coming in to the UK market to make investments.

With this number of factors coalescing, it is no surprise that there has been an increase in appetite of private equity firms looking to participate in deals in this space.

If you are the owner or an executive of an asset manager and the call comes in to you, there are some things to consider when deciding if a private equity exit is right for you.

As an adviser in this space, I would suggest that these questions should be on your mind if approached:

• Do you already have a succession plan or an exit plan in place?
• If you do have a plan does that include taking outside investment or a full scale exit? If your plan is to remain, say, family owned or independent then the call should be a short one.
• What is the deal being offered? Is this a full scale exit where you leave the business entirely? Is this a strategic investment that will help fund your next round of investment and growth?
• How will your clients feel about a new investment or an exit? Will the client base be affected negatively because of private equity investment? Do they value that personal relationship they may have and will they see that as threatened and perhaps move to a different adviser and harm the value that you have already created?
• Is the investor already in this market? Will you become part of a 'buy and build' strategy and be able to join a bigger group and benefit from advantages of more resource and perhaps national and international expertise and exposure?

This is undoubtedly going to remain an active market and a continued focus for private equity.

The industry itself is large enough and still fragmented enough for a number of deals to be done and to continue to be done in the future.

I suspect the next interesting areas to watch and consider will be whether there are any clear winners in the market that can create trust, confidence and a brand that will give them a competitive edge when looking to acquire or invest in wealth management (and then lead to increasing market share as a result of that consolidation and brand).

Also, what will be the next phase in the market itself? With private equity generally having a three to five-year horizon for investments, what will their exit route be?

Will we see an increase in secondary buyouts? Will we see more IPOs in the space? 

Regardless of the answers to the above, it is going to be a sector that remains ripe for opportunities and an interesting one to be involved in and I will be watching eagerly to see how it all plays out.

Stuart Hatcher is a partner in Forsters’ corporate team