Advice firm M&A continues to ramp up with pair of deals

Last week, Insignia Financial’s salaried advice business, Shadforth, announced it would acquire PMD Financial Advisers in Melbourne, with the deal set to bring across five staff and 388 clients to the Shadforth network, as well as $700 million in funds under advice.

High-net-worth (HNW) advice firm Multiforte Financial Services also announced a deal to merge with Sydney advice firm Lorica Partners, with the merged entity operating under the Lorica Partners brand and all Multiforte staff transitioning to the Lorica structure under their existing roles and employment conditions.

According to Shadforth CEO Terry Dillon, the time is right to pursue inorganic growth as it seeks to double in size by 2030 and acquires a Melbourne advice firm.

PMD Financial Advisers was chosen, Dillon told ifa sister brand Money Management, as their average client size and revenue are “almost a mirror” of the existing Shadforth client base.

“The clients look and feel like Shadforth clients already, they are receiving total balance sheet advice from a private wealth offering, they have a similar average client size, they offer a similar service and are a wonderful fit for us. The advisers are high quality with long successful careers, and we want that to continue, it was an easy deal to be interested in,” he said.

Choosing an advice firm which is a good fit and cultural alignment with Shadforth is the key to a successful deal, he said.

“We want businesses who have a common view to us, we don’t want to be an aggregator bringing disparate businesses together, we want people who believe in the same things as us. It has to be a good fit; if we are twisting someone’s arm to provide holistic advice or having an evidence-based investment philosophy then they aren’t the right firm for us,” he said.

This is the first major M&A deal the firm has made in recent years, as it has preferred to focus on organic growth and training its 94 advisers in-house, as well as 63 associates.

However, if the firm wishes to achieve its growth targets on track, then Dillon said M&A is now the right approach to take if it wants to double in size and that the PMD will be the "first of many" for the business.

Dillon said Shadforth is seeking to increase funds under advice (FUA) from $17.5 billion to $35 billion, increase clients from 10,400 to 20,000 and increase revenue from $108 million last year to $220 million.

It is already in talks with several firms and specified it wants to work with firms that have a clear investment philosophy and who serve HNW clients, but Dillon said it was important for Shadforth to work on itself and have its own house in order before pursuing any M&A.

“We are looking to double in size by 2030 and if we rely only on organic growth then we can get a long way towards that doubling but we don’t quite think we will get there. So that’s where selective, tuck-in acquisitions will help us to achieve that goal,” Dillon said.

“We are in a strong position to grow dramatically and we can do some on our own but we also have an opportunity with PMD which has great clients and great advisers to help us reach that.

“We have really strong organic growth already but these sorts of acquisitions will be the cream on the cake.”

Succession as important as growth

The Lorica and Multiforte deal, which will see around $300 million in assets under management added to take the combined firm to $1.1 billion, was largely aimed at succession planning.

Lorica was founded in 1983, previously known as Stewart Partners before rebranding as Lorica in 2021 after the departure of founder Nigel Stewart.

Speaking to Money Management, Lorica managing director Lisa Walters and partner Brendon Vade said they had been approached by Multiforte and were attracted by the mutual investment philosophy between the two firms.

“Multiforte put the feelers out and we were mutually connected. This was early in July, but we found there was a natural alignment between the two firms,” said Lorica managing director Lisa Walters.

“It’s easy to tell if there is an alignment between the two firms so we were able to deal with it quickly.”

Lorica partner Brendon Vade added: “They wanted to sell to achieve succession for both their clients and their team, and for it to be something they could do on their own terms rather than waiting for some issue and leaving it too late. They were proactive about making sure they could find the right fit for their team and their clients.”

In the case of Lorica, it said Multiforte clients will continue to work with their current advisers in the next 12 months, and the firm’s technology stack, systems, and advice processes will remain the same in this time to ensure operational continuity.

Achieving scale has been a commonly cited goal of advice firms, with numerous licensees, both large and small, opting to enact M&A activity to boost their revenue and client base, but both Walters and Vade agreed it could bring about difficulties.

“Scale is a double-edged sword. It is not appropriate for everybody and you need to know what you’re getting and how you are going to achieve that goal. It’s a great buzzword, but it is not always achievable in reality,” Walters said.

Vade said: “We’re looking for sustainable growth and creating a firm with longevity that can continue to guide our clients over the long term. We want to make sure we’re around and operating well for them.

“Scale is necessary to a certain degree, but where we are quite sceptical is people say that as an excuse to try to increase the enterprise value of their firm; that is what is driving a lot of these transactions.

“It’s our observation that people who don’t do as well out of these deals are clients and staff, so we want to make sure this transaction and any others we do in the future are animated by that succession of great quality advice relationships.”