Wealth players experience FOMO amid heated M&A environment

Large wealth management players are increasingly taking an opportunistic approach to M&A deals, while a fear of missing out (FOMO) is driving smaller players to consider selling amid a heated environment.

Pitcher Partners’ recent report discovered that an overwhelming 97 per cent of Australian dealmakers are actively looking for M&A opportunities, with generational leadership transitions set to be one of the key drivers of inorganic growth activity in 2025.

The research also unpacked the rise of “opportunistic” dealmaking, in which firms engage in M&A activity based on market conditions and developing events, rather than strategically planning 12–24 months ahead.

Some 53 per cent of respondents said recent deals were in response to immediate opportunities, compared to 40 per cent who engaged in deals as part of a strategic plan.

“Reflecting the impact that economic uncertainties are having on dealmakers, many noted a marked pivot in their deal rationale from long-term planning to a more opportunistic approach,” the report stated.

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“The rise of opportunistic dealmaking could be driven by the increasingly competitive nature of the market. With Australia maintaining its reputation as a safe and predictable investment environment, dealmakers face pressure to act swiftly when favourable deals arise. More and more, this is the case in sectors facing rapid technological changes or competitive pressures, where waiting could mean missing out on crucial opportunities.”

This could be the case with Insignia Financial where a rejected bid from Bain Capital led two separate companies to make their own bids, and with Selfwealth where three bidders entered the fray to acquire the trading platform.

To unpack how this trend is playing out in the Australian wealth management space, Money Management spoke with Pitcher Partners’ client director, Rupert de Crespigny​​​​.

The client director cited regulatory and compliance burdens as one of the main challenges that smaller wealth managers are facing at the moment, prompting larger players to swoop in for a potential deal.

“The added compliance and regulation specific to the wealth management industry is making it difficult for smaller players to stay within that market, which then creates those opportunistic opportunities for the larger players to perhaps look to bolt on a few of those at a lower value than what those smaller businesses would perhaps expect,” de Crespigny said.

Opportunistic dealmaking is evident when larger companies pursue an acquisition due to smaller players selling at a discounted price, even if M&A is not on their long-term priority list, he explained.

An example of this would be WT Financial’s acquisition of Millennium3 from Insignia at the end of 2023, despite managing director Keith Cullen stating the firm had completed its inorganic growth strategy.

“The larger players are going to stay in the industry. Given the regulatory environment, perhaps M&A wasn’t necessarily on their radar. However, if they can pick up some of these other players for one of a better term, a discount, then perhaps that makes it more attractive and more a part of their strategy.

“There’s still a level of disconnect between buyers and sellers on value, with a lot of buyers looking more opportunistically on value, rather than sitting back and really looking at their strategy and then looking to pay what the seller might be expecting.”

Moreover, de Crespigny highlighted an element of FOMO occurring in the space, with wealth managers wanting to keep up with their active competitors.

He referenced Generation Development Group (GDG)’s recent acquisition of Evidentia Group that completed on 18 February, which could trigger more M&A in the sector.

“I think that deal will perhaps spark some further transactions in that wealth management space. Often what you see in M&A, more broadly, is that when there’s a large transaction like that, often you’ll see that triggers a bit of a flow-on effect.

“You’ll have GDG’s competitors thinking, ‘Alright, well how do we keep up? What do we need to do to stay relevant?’ Obviously there is a finite number of assets out there, so it can create a bit of FOMO. So perhaps there’ll be a few other follow-on transactions as a result of that.”

Small- and mid-sized firms

Further down the market cap scale, however, it is more likely that sellers of small- and mid-sized financial advice firms are the ones experiencing FOMO amid media and anecdotal evidence of excessive deals.

Stephen Prendeville, founder and director of Forte Asset Solutions, said: “Demand isn’t spontaneous or because of FOMO; it’s strategic. Everyone is looking to achieve size and scale,” Prendeville argued.

“There might be seller FOMO though because of the higher multiples being spoken about and the proliferation of private equity, but the market needs to understand that it’s those very large firms which are attracting those multiples.

“There are some which are attracting 8–10x multiples, but those are large, multidisciplinary firms that have more client retention and greater brand recognition. Not many firms look like that and can operate at that level.”

The founder observed that prices are generally still at fair market value, meaning higher demand has not led to price inflation with private equity firms, in particular, being described as “smart” on their pricing.

John Birt, founder of Radar Results, added: “Buying a practice is a big decision and a lot of money. It is not something that you jump into or do because of FOMO.”

However, he noted there is a trend where he is seeing more buyers who are making cash purchases rather than via equity or loans, which he described as “mind-blowing”.

“They have this cash ready and they want to buy something – it’s mind-blowing. It didn’t used to be that way in the past.”

More broadly, Prendeville described the wealth management industry as the most active M&A market he has seen for small-to-medium businesses, thanks to a combination of factors.

“Why is this? Because there is less legislative risk, a good Aussie dollar rate, good compliance overlays, global rising demand for financial advice, the best super scheme in the world, less competition from banks, and recurring revenue streams,” he said.