Mergers increasingly popular as profitability diminishes

Speaking to ifa, Steve Prendeville, director of Forte Asset Solutions, explained that while mergers are always really attractive due to the benefits of synergy, unfortunately not a lot of mergers experience success.

“There’s always going to be a dominant culture that’s pervasive. So often a merger will actually turn around, and quite often be an acquisition that’s just presented differently,” Mr Prendeville said.

Mergers, he noted, have been increasingly popular in financial advice because of the diminishing profitability many firms have encountered over the last several years.

The largest amount of activity, Mr Prendeville shared, is taking place among firms with revenue below $500,000.

“Immediately by a merger, one party is saving, or both parties are saving on rent. All of a sudden, costs can be shared on labour,” he said.

“A need for optimising profitability is probably industry-wide. I think we’ve seen a couple of examples in the last couple of years, where it’s almost going back to the future of super agencies.

“Where multiple people come under a single roof licensee, but they own their own books. But they’re sharing costs. I think that’s a natural movement in these times, where we’ve got so much pressure coming through on costs, and then obviously down to the bottom line,” Mr Prendeville explained.

As such, he expects the number of mergers to continue to increase.

Ultimately, Mr Prendeville advised those exploring the possibility of a merger to retain their own assets rather than proceed to merge them immediately.

“If anyone is looking at a merger, my standard advice is, live together for at least 12 months before there’s actually an equity event. Ensure that the culture is right,” he concluded.