But if the AUM falls, then the price paid is automatically higher as a proportion of the new assets under management, while it will also take more of the income generated by the acquired firm to pay the debt, leaving much less margin for error.
Gravatt is more cautious on the potential for interest rate rises to disrupt the trajectory of the current M&A boom. He says: “Everything is going to be tougher for everyone. But higher rates definitely impact the commercial rationale for some of the valuation multiples being paid now, and one would think those valuation multiples will be impacted.”
Spratt says most advice firm acquisitions come with a condition around the level of assets under management in the year or so after the acquisition, offering the purchaser a measure of protection from market falls.
The market for advice firms has been in a highly unusual place over the past decade, helped by low interest rates, but also certain structural factors; the coming years will doubtless determine whether advisers looking to sell their firms can achieve the same sort of prices as have been the case in the past.
david.thorpe@ft.com
