Money Portal says it expects the direct support services market to shrink this year due to increasingly tight regulatory conditions.
Managing director Chris Edge says the directly authorised model faces the biggest threat due to FSA activity.
He says: “With increased capital-adequacy requirements, the prudential rules paper and treating customers fairly throwing a spotlight on direct-to-market propositions, I see that market shrinking. What is left will still be attractive to some. There is now an opportunity to offer that option without spending a lot of money on building it but we are totally agnostic about which model our advisers choose.”
Edge says the DA proposition can now be offered as an offensive strategy rather than defensive and says Money Portal will make further acquisitions of a similar nature in the future.
He says: “We have a risk mitigation plan in place with the FSA and will not enter into another acquisition plan until that takes place. We cannot spend shareholder money on propping up failing businesses. We have to make sure this is functioning properly before we can do anything else.”
Last week saw Money Portal make an offer to acquire 100 per cent of the share capital of Burns-Anderson for around £14m. Burns-Anderson will re-register as a private company and chief executive Mike Hughes is looking forward to the increased freedom that will bring.
Hughes says: “We have had all the downside of being a plc without any upside. Our shareholders have been unable to sell their shares because we have not had a listing but we have still been bound by the stockmarket rules. It will now be cheaper and easier to run our business.”
B-A’s main attraction for Money Portal was its commercial strength and similar belief structure, with both boards of directors respecting each other’s attitudes.
B-A’s proprietary IFA, B-A IFA, now has 20 advisers and 15 support staff and was another big draw. It offers IFAs a third option when considering their exit route or practice buyouts.
Money Portal now comprises the Sage network, national IFA Bates and execution-only firm Willis Owen as well as Burns-Anderson’s network, B-A Direct, and B-A IFA.
Future practice buyouts and servicing of orphan clients are paramount in Money Portal’s strategy, as is moving to annuity-type income and better business terms and efficiencies with third parties as a result of the increased scale.
The Burns-Anderson deal, subject to a 21-day offer period, will see Money Portal paying £14.2m. This includes net assets of £5m and goodwill of £9m, at a multiple of three times net income.
B-A is on target to make a profit of £2m but Edge says this could increase to £3m by the year-end.
Edge says three banks were willing to lend the money to Money Portal, which he says is a testament to the group’s financial strength in difficult times. He says: “This is an entirely debt-funded acquisition but we still have lower than a one-to-one ratio of debt to equity. That is very prudent gearing.”
If the deal completes, Money Portal chief executive Richard Craven says they are on track to control 25 per cent, or £20bn, of UK asset flows.
Money Portal says there are a further 126 advisers in its recruitment pipeline, which is further evidence of the robustness of the network model.
Hughes is keen to reassure B-A advisers there is no need to worry about becoming “just a number.” He says: “We have been at pains to point out that all the same people will be looking after them. I am still here and all the senior management team will remain the same. We realise Money Portal is still largely unknown in our sector and we will be working to put its message out there.”
Hughes says initial feedback has been encouraging. He says: “We have spoken to the top 10 individual shareholders, as permitted by market rules, and they have already committed to the offer.”
The biggest individual shareholder, former B-A chief executive Steve Kelland, holds 6.72 per cent of the shares, which would see him receive nearly £960,000.
Hughes and B-A finance director Peter Coleman are expected to receive around £500,000 each.