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Lack of profit puts Aim off target for IFAs

Aim listing may no longer be an option for IFAs looking to capitalise their businesses, according to analysts.

Some analysts believe only very big IFAs with proven business models can now attract institutional investment while smaller firms will have to rely on mergers, acquisitions or provider investment to grow their businesses.

Institutional investors warn that the failure of Aim-listed IFAs such Inter-Alliance and Lighthouse to return a profit has dampened sector expectations at a time when providers are chasing distribution.

For the past two years, several IFA firms have been planning to float on Aim as a stepping stone to growth but analysts say the investing environment has fundamentally changed.

They argue that while the sector will see frantic activity as the rush for distribution plays out, institutional investors will not make plays for IFAs without clear profit potential.

However, product providers will be prepared to pay for strategic stakes in IFAs to secure distribution of their own products.

Bell Lawrie analyst Ian Macarthur says: “IFA businesses that floated in Aim are yet to prove profitable. A few smaller IFAs have tried floating, looking for fanciful valuations and have not got away with it. To succeed you need decent infrastructure in place and scale of numbers. Fund managers want to invest in a company because it is profitable in its own right, not for strategic reasons.”

HST Financial group chief executive Philip Lockyer says: “We have seen very few IPOs in any sector since September 11 but I do believe that we will see more mergers and acquisitions.”

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