Can Spacs conquer the world of wealth management?

While the boom in special purpose acquisition companies may well be tailing off slightly, market watchers are still waiting for things to take off in the City.

One area that investors certainly have their eye on is the UK’s burgeoning wealth management space. The headwinds look to be set fair; the pandemic has led a new wave of investors – particularly younger ones – to take another look at their finances and look towards fund solutions in an era of continually-poor deposit account rates.

The coronavirus crisis has also kickstart thoughts about intergenerational wealth transfer, as the older generation look to the financial planning services offered by many fund managers as a way to effectively look after their tax and estate planning needs as well.

Toes are starting to dip in — in June, London’s Evening Standard reported that UK wealth manager True Potential, which has more than £11bn on its platform, was eyeing a potential $2bn Spac float on Wall Street.

Sources close to the firm were unable to confirm if True Potential had made any progress to Financial News, but the move is significant nonetheless, following Kingswood Acquisition Corp, a Spac backed by fellow British wealth manager Kingswood Group, raising of $115m last November.

READ London is missing out on Europe’s record $4.4bn Spac boom

Gunning for glory

With many wealth management business seeing clear opportunities to acquire sub-scale peer buffeted by the pandemic and increased burden of regulation in the sector, Spacs could be a compelling proposition for those who are not quite large enough to merit an IPO to raise funds.

Spacs often have to acquire target firms within two years of setting up. With the coronavirus putting plenty of firms under pressure, the argument for being open to deals as swiftly as possible without waiting for an individual company listing can look attractive. For those wanting to do a full IPO, it can help them do it properly. Rather than rush a formal float, they can head down the Spac route to access public markets instead.

“Say I’ve got X Spac, with £200m in it, I have the delegated authority and I need to buy quick,” says Roderic Rennison, an independent acquisitions consultant in the wealth management space.

“There are some funds that, if they trust the acquirer is, relatively speaking, they are providing more flexibility than if they are debt funded, where you have to fit in the grooves and it can be more challenging more demanding.

“I know one buyer who was complaining that a firm was overbidding on stuff because they needed or wanted to make early acquisitions. But I wouldn’t say they are making silly offers; they are making competitive offers.”

The Spac might also have a longer time horizon that the private equity firms that frequently enter the sector and dispose of their buys a handful of years down the line.

READPrivate equity firm sells out of wealth manager Wren Sterling

Another expert in the sector says: “The advantage that [acquisition targets] see with a Spac is they might have some expertise in a sector, they might have hundreds of millions to spend, and you know, their track record. In the background they have spent a year looking at targets. They’ve put their own money into that firm, and you know that comes with a stamp of approval.”

The sting in the tail

Industry experts remain undecided as to the merits of the approach however. Some of the largest wealth management businesses in the UK are simply too big for a Spac to acquire, according to experts. Other say there are continued issues with due diligence on sponsors and funding.

The Spac might not offer benefits of selling to a larger wealth manager, such as centralised technology or investment solutions. As a result, many in the sector are still backing traditional M&A activity to drive growth and consolidation in the sector.

“Most of the time people feel that it’s not worth doing,” one acquisitions specialist in the sector says. “If you are a business that wants to IPO, there a bit of a stigma to say you want to do a Spac. Of course there’s costs but there’s a little bit of a stigma as well.”

“I’m a bit sceptical,” adds another boutique adviser. “I’m sure the day will come when we have a sale of a firm and we have private equity and other buyers including Spacs, but they are a little bit of a fad. There will be some successes and some failures.”

“There’s a firm that’s quite similar to us that set up a Spac last week. That’s a little bit off mission if you ask me. We are busy enough as it is to down tools and say we are doing a Spac; it’s not our expertise.”

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To contact the author of this story with feedback or news, email Justin Cash

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