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A fresh Perspective? Advisers take stake in consolidator as part of £6m restructure

IFA consolidator Perspective has agreed a £6m restructure that will see advisers take a 38 per cent equity stake in the firm as executive chairman Paul Hogarth attempts to revive the business.

The £6m will be used to pay off some of the company’s debt and pay money owed to acquired firms, Money Marketing can reveal.

Advisers have also been handed a stake in Perspective of more than a third.

Hogarth acknowledges the past 12 months have been a “difficult” period for the business, during which the company abandoned plans to raise £28m through a float on the Alternative Investment Market, made failed attempts at a sale, halted its acquisition strategy and experienced a raft of senior departures, with one acquired adviser abandoning the firm altogether.

The capital restructure

In January, Money Marketing revealed Perspective had agreed with five acquired firms to defer the payments owed under the acquisition terms. Hogarth also put a £2m cash injection into the business.

Perspective agreed the £6m refiancing package earlier this month. Of this, £2m has been earmarked to pay an instalment towards the firm’s £13m debt to Lloyds Banking Group. Hogarth declined to comment on how much of the remaining £4m has gone on deferred payments to advisers. He says all deferred payments due will be paid. Deferred payments to four firms are being processed, with another firm to be paid in August.

Hogarth says: “We began to look at what we were going to do and it was clear some things needed to change. It also became clear we needed a capital injection of £6m to move forward.”

Under the restructure, original private equity backer Mosaic will provide an additional £500,000 in funding. Hogarth himself has injected a further £2m, on top of the £2m put in the business at the start of the year.  

A 25 per cent stake in the business has been split across all 31 acquired firms and weighted according to firm earnings. The shares were given to member firms under a Government initiative called Enterprise Management Incentives, which is conditional on employees spending either 25 hours or 75 per cent of their working week with the business, whichever is greater.

A group of 20 Perspective advisers have purchased an additional equity stake totalling 13 per cent for a combined £1.5m. This structure gives advisers a 38 per cent stake in the business, with Mosaic reducing its stake from 55 per cent to 28 per cent. Hogarth and senior management control the remaining stake. 

Back on the acquisition trail

Hogarth says the firm will look to return to a period of stability and improve growth in the short-term. He says acquisitions will then begin again “as cash generation allows us to”. The firm will consider raising further bank debt or private equity funding to finance the growth of the business in future. 

Despite a challenging period, Hogarth argues the underlying business remains strong.

“We have been through difficult times and there is no hiding from that,” he says. “But the key metrics are that of the turnover of £19.4m, in excess of £12m is recurring and that is a strong figure. And secondly, earnings before tax for 2014 is on track for £5m. The final big metric is £2.6bn in assets under advice.”  

Hogarth says the business will begin acquisitions again with a different approach. While the firm set out in 2008 to offer cash upfront in exchange for advice firms, it now plans to roll out a new model which it describes as “associate membership”. 

Due to launch in the coming weeks, the model will see businesses join as appointed representatives, with a view to being acquired. Firms will have to adopt Perspective’s systems and processes.

“We will want to see their compliance culture, take control of their book-keeping and there will be professional indemnity cover,” Hogarth says. “Most importantly, we would be offering to build their central investment proposition.”

Hogarth emphasises the Cip may not be appropriate for all clients and advisers can choose not to use it. The proposition includes a model portfolio service run by boutique discretionary firm Cambridge Investments, owned by Perspective.

Tatton Investment Management, run by chief executive Lothar Mentel, will provide overarching investment recommendations, such as which sectors to invest in. Tatton is part of Paradigm, a company founded by Hogarth.

The Cip also uses the Nucleus platform, in which Perspective is a shareholder, and Amber, which is owned by Paradigm and is a white-label version of the SEI platform.

Once advisers meet the required level of integration, they will be considered for acquisition. Hogarth says this is likely to be in exchange for an equity stake in Perspective or a mixture of equity and cash.

Advisers

So what do advisers make of the changes? Ad Valorem Wealth Management director Derek Baptist saw payments deferred and describes the period as “unsettling”.   He says: “There was concern whether the contract would be honoured for sure. But I was reassured from having a discussion with Paul, although it did get quite difficult. The word I would use to describe the period is unsettling.”

Baptist has backed the restructure, buying into the option to increase his own equity shareholding. He says he believes Hogarth’s decision to take a more hands-on role in the business is a good one.

“That was a positive because Paul was one of the reasons I joined the business in the first place,” he says.

“I have backed the proposals as I am one of the new shareholders. We have got a good vision going forward and I am optimistic. Obviously it was essential the recapitalisation occurred but the actual figures for the company are good. It is profitable and there are exciting things happening again.”

Rutherford Wilkinson, the largest firm in the group, was acquired in November 2008. One of the earliest joiners, the firm’s managing director, Ian Wilkinson, joined Perspective as group practice director as well as continuing to run his own business.

The firm was not directly affected by the deferred payment negotiations having already gone through its earn-out period. Wilkinson has, however, bought an increased equity stake in the business as part of the restructure and says the larger shareholding held by advisers is key.

He says: “We have seen the plan and there has been a change in the ownership of equity in the company. There is more owned by advisers in the group and we are all going in the same direction.

“We are all in this together now and that makes a difference.”

A snapshot of some of the rival consolidators

Succession

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Run by Simon Chamberlain, Succession operates a process of integration where member firms are asked to meet certain criteria before being considered for acquisition.

Acquisitions are made for both a cash consideration and equity in the Succession business.

Advisers receive half the valuation of the business as cash and half as shares. The group takes control of the client relationship and advisers are paid 50 per cent of the ongoing income earned on those clients.

Firms are valued at six times recurring income for business placed on the Succession platform and three times recurring revenue on other investments.

Private equity firm Inflexion took a 51.1 per cent stake in the business in January.

Chamberlain says the investment will help finance the £140m he believes will be needed to acquire 50 member firms overall.

He is targeting £110m or turnover and hopes the business will achieve a valuation of more than £500m when it reaches its planned capital event.

Bellpenny

Set up by former Intrinsic chief executive Kevin Ronaldson in 2012, the firm has backing from Oaktree Capital.

Kevin Ronaldson Bellpenny 700

It pays a cash consideration upfront and says it would like the advisers to stay on as employees, although they can leave if they wish following the acquisition.

A high level of integration is required post-acquisition. Firms take on the Bellpenny branding and clients are contacted directly to explain advice is now being given through the parent company. 

There is no central investment proposition.

Tavistock

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In May this year Tavistock Investments became the latest firm to launch a consolidator business.

Overseen by chief executive Brian Raven, the firm acquired County Life and Pensions, which owns the Sterling McCall network as well as discretionary management firm Blacksquare.

Acquired firms are brought into the business in exchange for an equity stake in the business.

Its investment proposition sees portfolios managed by Blacksquare. 

Timeline

  • 2008: Perspective launches with backing from Mosaic, a private equity firm based in Manchester. Paul Hogarth, Paradigm chief executive and previously involved with support services firm Bankhall, also injects money into the business
  • 2011: Perspective reaches 20 acquired business 
  • July 2013:  Company begins to explore an exit strategy to deliver a return to investors, and announces plans to float on the Alternative Investment Market and raise £28m. It also receives interest from two private equity firms but Hogarth says neither was able to make a “concrete” offer
  • January 2014: Group operations director Peter Craddock and finance director Phil Carr leave the business
  • January 2014: Money Marketing reveals the firm has been forced to defer payments to some acquired firms, with Paul Hogarth injecting £2m
  • Apri 2014: Managing director Damian Keeling and commercial director Anthony Morrow leave the business 
  • May 2014:  Perspective member Austyn Smith of Austyn James Consulting steps down from advisory board and quits the firm. Perspective says Austyn had reached the end of his earn-out and has been paid in full

At a glance: Perspective restructure

  • £6m capital injection – £4m from Hogarth; £500,000 from private equity firm Mosaic; and £1.5m from a group of advisers in exchange for 13 per cent stake
  • Advisers now own 38 per cent of the Perspective business, including 25 per cent through share scheme
  • Perspective plans more acquisitions, using a new associate membership model to integrate firms into the business

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