Financial advice M&A: Valuations for larger firms rise as market shifts

Multi-adviser financial advice firms are attracting higher valuations as the sector’s intense M&A market shifts. Over recent years, consolidation in the sector has largely been led by sales of smaller independent financial advisers (IFAs) to larger firms.

These consolidators, typically backed by private equity firms, have achieved rapid geographic expansion and greater scale by targeting acquisitions of small, regional operators, often when the owners of such firms choose to retire. In 2020, the average age of an IFA owner in the UK was 58, while a 2022 survey from Gunner & Co found that 60 per cent of owners were planning an exit within three years.

Owners were increasingly tempted to sell as a result of rising sale multiples, with Gunner & Co reporting last year that the average multiple for an IFA was over four times recurring income, up from 3.4x the previous year.

However, a new report from Gunner & Co seems to signal a shift in the dealmaking environment – with multiples for IFAs falling this year, while valuations for larger, multi-adviser firms continue to see rapid growth.

In its latest report, Gunner & Co analysed five years of deal data, finding that average EBITDA multiples for larger, multi-adviser firms have grown to 8.3x during the first half of 2023, up from 8x last year and significantly higher than the 5.9x average seen in 2019.

However, average recurring income multiples (the typical valuation method for IFAs and other small providers) for smaller firms have cooled off, returning to 3.5x during the first half of 2023, with owner-managed firms seemingly being affected the most by inflationary pressures and general market volatility.

According to Gunner & Co, buy & build operators in the sector are facing challenges “in achieving their scale objectives”, something that could lead to “a wave of buyer mergers”. This is potentially resulting in lower demand for smaller firms, which the report states is “exerting additional pressure on prices.”

Gunner & Co Managing Director Louise Jeffreys said: “The influx of buyers, predominantly supported by private equity houses, seeking opportunities in this category has led to robust demand and increased values, creating a favourable environment for sellers.”

“Valuations for smaller, retiree businesses have consistently averaged around 3.5 times recurring income since 2019. It is not surprising to witness the figures returning to this range. The market for these smaller firms has become increasingly challenging, with a growing number of buyers seeking bigger deals that significantly impact their portfolios.”

She added: “As the M&A landscape evolves, multi-adviser firms continue to be a lucrative option for those seeking robust growth opportunities, while smaller businesses must navigate a more challenging environment amidst fluctuating valuations, a tough regulatory environment and escalating demand from buyers.”


For a more in-depth examination of the numerous factors driving this ongoing period of consolidation check out our analysis of M&A activity in the UK's financial advice sector.

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