Acquisition-led growth reaches fever pitch

Up to six independently-owned dealer groups are currently in negotiations with institutions for their acquisition, according to Steve Prendeville, director of financial services acquisitions consultant Kenyon Prendeville.

Prendeville told Money Management that “five or six independently-owned dealer groups are currently going through fairly robust and extensive negotiations with institutions”.

He did not disclose the names of either the institutions or dealer groups involved in the negotiations, which he said were being driven by general demand for “distribution and particularly platform positioning”.

Demand by the institutions is being mirrored by the “record demand” for acquiring financial planning practices from other practices and dealer groups rushing to publicly list, he said.

“Many of these dealer groups are making acquisitions to ensure they have sufficient FUM [funds under management] and earnings before interest and tax (EBIT) to be able to demonstrate profitability at listing.”

He said “half a dozen dealer group listings are planned over the next five or six months, including CentricWealth, Storm Financial, ProfessionalInvestment Services (PIS) and potentially two other groups”.

The primary driver of the acquisitions demand is not from the institutions or the dealer groups, but rather from “business-to-business demand by similarly-sized financial planning practices”, he said.

“Many of these practices are seeking to grow by acquisition in an industry in which economies of scale are very easy to achieve and very real, because of volume overrides and the like.”

This business-to-business demand is also being driven by pent-up demand created by a slower acquisitions market in the last six months to June 30, this year, Prendeville said.

In the meantime, dealer group PIS has confirmed it is reviewing its proposed ASX listing date of March 2008.