Questions have been raised over Benchmark Capital’s acquisition process after it appears the group gave a potential acquisition target “assumptions” for flows going onto its platform and in to its funds.
A document seen by Money Marketing, was initially given to an advice firm in sale talks with Benchmark Capital.
It is a spreadsheet which lays out financial details of the advice firm and assumptions and projections about the business from Benchmark.
On the a section labelled “Assumptions”, the document lists figures labelled “% of asset flows to Fusion funds”, “% of asset flows to Fusion platform” and “% new asset flows to non Fusion”.
The figures are, annually, 70 per cent, 20 per cent and 10 per cent respectively. This appears to indicate where it is assumed new assets will flow.
A section labelled “Projections” shows a continuing upward trend in platform and fund assets under management over a 10-year time period.
It also uses formula for enhanced multiples on projected new business figures giving an idea of what the earn-out could look like.
The ways of calculating considerations are split into three models: multiple of ongoing revenue, EBITDA and assets under management.
The highest multiples are for assets in Fusion funds. Using the multiple of ongoing revenue model this comes in at five times revenue from assets invested in Fusion funds. Using the EBITDA model this is ten times.
For funds on the Fusion platform the figures are 3.25 times when looking at the multiple of ongoing revenue model and eight times with the EBITDA model.
Using the assets under management model the consideration is 2.5 per cent and there appears to be no change to that regardless of where assets are held.
The document was authored by Benchmark director Keith Hare.
Benchmark Capital says it is not aware of where the document came from and that it has nothing to do with the way the group buys advice firms.
Benchmark Capital is a vertically integrated group including the Best Practice network, chartered IFA Aspect 8, network and chartered financial planning firm Evolution Wealth, investment platform Fusion Wealth and technology firm Creative Technologies.
Investment manager Schroders took a significant stake in Benchmark Capital in 2016 and increased their holding to 77 per cent in May 2018. In December last year Benchmark Capital took a 49 per cent stake in ratings and research agency Rayner Spencer Mills Research.
The Fusion Wealth platform, launched in 2011, runs a discretionary fund manager Fusion Wealth Investment Solutions. According to a Fusion Wealth Investment Solution bulletin from last year the DFM managed £1.6bn of client assets at the end of June 2018. The service is exclusive to the Fusion platform and uses research and expertise from Schroder and RSMR.
Asked for comment on the document Benchmark Capital chief executive Ian Cooke says the group does not offer firms a higher price for directing asset flows to Benchmark products:
“This is not one of our standard documents or indeed anything I recognise.
“I can absolutely say that Benchmark has never bought any firm on any enhanced multiple because of provider usage and we never will.
“The primary measure of due diligence for us is the suitability of advice and professionalism of advisers.”
He acknowledges the vertical integration aspect of the group but emphasises there is no financial incentive to use more than one part of it.
“We have a platform business, we have Schroders, we have [Shroder’s-owned DFM and private advice business] Cazenove, we have funds that Schroders has built for us. All of this could be considered an incentive if you put a premium on it. But we don’t put a premium on anything. Never have and never will.”
Cooke also says why Benchmark would not offer enhanced multiples.
“We would regard it as an inducement so we wouldn’t do it.”
One industry professional said they were not surprised to hear about this exchange between Benchmark Capital and an advice firm.
They say: “The game has not really changed, all that has happened is firms have got better at covering their tracks to make sure this sort of thing does not appear in anything formal the FCA might see.
“Distribution deals can be done on a nod and a wink and hints of a promise of a future pay off.”