Investors looking for takeover action in 2024 should look no further than the hitherto sleepy small-cap financial advisory sector, where the pace of consolidation is gaining pace.

There’s no one reason for the uptick in merger activity – the regulatory tightening is pretty much done and dusted – although it’s no coincidence the professional services sector has been low-growth of late.

Prime Financial Group (ASX:PFG) chief Simon Madder says “all sorts of conversations are taking place” across the sector.

“The activity is far more obvious in the public space, but in the background several private equity-backed players have been acquiring wealth management businesses at a rapid pace.

“Everyone is trying to find their right partner to dance with.”

Currently there’s a two-way skirmish for Diverger (ASX:DVR), formerly Easton investments, a collective of advice and accounting brands including GPS Wealth, Paragem, Merit Wealth, Tax Banter and Merit Wealth.

Sector stalwart Count Plus (ASX:CUP) lobbed a cash-scrip offer at a meaty 31 per cent premium, but in late October COG Financial Services (ASX:COG) made its own non-binding offer.

COG is an interesting – if not bewildering – mix of funds management, salary packaging and finance broking.

Count Plus remains the preferred bidder for Diverger, which is backed by the platform HUB24 (ASX:HUB). Subject to a vote by Diverger holders in February next year, the union would swell Count Plus’s advisor numbers by 50 per cent, to around 580.

In August last year Diverger bid $63 million for Centrepoint Alliance (ASX:CAF), which provides lending services to mortgage brokers and financial advisers.

For its part, in 2021 Centrepoint acquired the financial advisory business of life insurer Clearview Wealth (ASX:CVW), with the latter taking a 24 per cent stake in Centrepoint.

In early 2022 HUB24 bought out listed self-managed super fund specialist Class Ltd for a tidy $386 million.

Behind the flurry of activity is the stark reality that advisor numbers have shrunk by about 40 per cent over the last five years, which means fewer dealer groups are needed to license and to support them.

Formerly IOOF, Insignia Financial (ASX:IFL) is the largest, servicing 1385 advisors. The once-mighty AMP (ASX:AMP) claims about 1000 advisers – and shrinking.

Centrepoint is third on 510 advisors, servicing and a further 1300 self-licensed practitioners.

Prime Financial Group operates across wealth management, capital raisings, accounting and business advice and SMSFs. The company focuses on the so-called wholesale market of high net worth families and individuals, usually business proprietors.

Its nearest listed rival is alternative asset specialist MA Financial (ASX:MAF), formerly Moelis.

Prime targets doubling revenue to $50 million by mid 2025, and then doubling again to $100 million within three to five years. While it can achieve the $50 million with organic growth, cracking the tonne will require acquisitions.

Prime reported revenue of $33.7 million for the year to June 2023, up 28 per cent and a net profit of $4.4m, up 16 per cent. So it’s well on the way to meeting its two-year goal.

Centrepoint, meanwhile, reported a $6.6 million net profit, up 154 per cent with revenue climbing 19 per cent to $272m.

At last week’s Centrepoint AGM, CEO John Shuttleworth said the company’s focus was on organic growth, but it had spent much time kicking tyres over the last year.

“We know what is required to deliver an integrated business with sustainable earnings and see many acquisitions destroy value due to loss of advisors, creating dis-synergies,” he said.

Fair enough – but it’s not quite a hard ’no’ and nothing can be ruled out in the current industry climate.
This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

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