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Higher acquisition prices raise questions about AFH strategy

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Higher acquisition prices raise questions about AFH strategy

Multi-billion pound television deals in recent years have inflated the price of football players to the point where a £12 million signing is now regarded as a ‘bargain’ deal. 

The same level of inflation has not, yet, hit the advice market. But there are signs prices are rising for the consolidators due to money flowing in from product providers and private equity sources.

Last week AIM-listed consolidator AFH said there had been ‘upward pressure on prices’ as a result of increased competition from the big boys backed by product providers or private equity.

This was borne out somewhat in its 2018 half-year financial results. At the halfway stage of last year, AFH had bought six firms for a total consideration, including possible deferred payments, of £4.5 million. In the same period this year it purchased the same amount of firms but the total cost is £6.7 million. 

It is hard to compare directly the prices paid year on year without going through the full financial records of the acquired businesses. This is difficult as most of the advisers who have been bought are classed as small companies and therefore only file the briefest of financial statements. 

But the higher figures suggest consolidators are paying at least a bit more this year than last year. At first glance this will not unduly worry AFH. It has strong cash reserves of £23.7 million, and has raised significant funds with share issues, including £17 million brought in last year.

Yet there is a question about what AFH is getting for its money when it buys a firm. Many of the deals announced so far this year appear to be for one-man businesses where the main adviser is retiring, the kinds of business where the clients are also getting older.

Meanwhile the likes of Standard Life-owned 1825 or private equity-backed Succession appear to be biding their time buying more expensive, but larger, firms.

This is not to say every business AFH buys is worthless. One of the company’s strategies is to hire younger advisers on its 18-month training scheme and pass on retiring advisers’ clients. This shows it is thinking about the next generation.

In the long term, though, it is questionable whether these acquisitions will add anything that training advisers from scratch would not have achieved. AFH has work to do to prove it is more than a team of veterans signed on the cheap lagging its larger rivals. 

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