It may sound like a lot to pay for a regional advice business, but Brewin Dolphin's £19 million bid for Bath-based IFA Epoch Wealth Management was not the highest the firm received.
‘We were in discussion with a number of organisations, early doors we eliminated a lot fairly quickly and we got into detailed discussions with three,’ the firm's partner Jon Rolfe (pictured) told New Model Adviser®. ‘There was one which was quite a bit higher than Brewin Dolphin’s but it just would not have been the right fit for us, our clients or our staff.’
Brewin Dolphin paid an initial £10 million to buy Epoch, with a further £9 million due in the future depending on targets being met. By all accounts Epoch’s numbers are strong for an advice business with 38 employees. According to financial statements published on Companies House, it recorded £4.2 million in revenues in 2018 and an operating profit of £2.1 million.
But the £19 million price tag has raised eyebrows when compared with other deals. For example Ascot Lloyd, a national advice busienss which generated revenues of £14 million, was bought by consolidator Bellpenny for £10.5 million in 2017. This deal created a £6 billion advice giant, far bigger than the £500 million Epoch added to Brewin Dolphin's assets under advice.
Tradition would have it that acquisition prices are normally derived from some sort of formula that includes revenue and assets under advice. Has something changed?
Rolfe (pictured) said a ‘fair multiple’ was reached by taking into accounts Epoch's growth trajectory, its unique features including its charity proposition and its ability to differentiate.
However there is another factor here – in 2014 Epoch gained its own discretionary permissions and prior to the acquisition around £300 million of its assets were held in its own discretionary service, Rolfe said.
The rest are held in other outsourced DFMs, including Brewin Dolphin, although Rolfe did not say how much. Following the acquisition, nothing will change initially, but clients will later be assessed and the majority are likekly to be moved to Brewin’s investment service over the next couple of years.
‘There was not any requirement to quickly move assets. That said a big part of the reason we have done this is the strength of Brewin’s investment proposition, so over time we will migrate but it not a wholesale switch.’
The ability to move clients into its own DFM service was clearly a driver behind this deal for Brewin, and also perhaps reflected in the multiple.
What next for Epoch?
Although this deal represents a big consolidation event, Rolfe said it would not change much in the short term. Following the deal all the partners and staff will continue to work in the Bath office.
‘I would like to think if you went into our Bath office in six months, apart from the fact our corporate colours have changed from green to blue, you wouldn’t know this transaction had happened, so no change to staff and all the clients are getting the same team.’
However in addition to Epoch taking the Brewin colours and name, the firm will also go restricted. Rolfe was already considering this move.
‘Epoch has quite sophisticated and complex clients but the ultimate investment solutions are mainly vanilla so as part of our decision making process we were seriously considering going down that route before we considered selling,’ he said.
‘Brewin checked a huge number of our client files and we concluded that there were very few if any cases of where we would not have been able to conduct that advice and end up with the same solution in a restricted world.’
Epoch also uses its own cashflow modelling software, i4C, which was launched in conjunction with Epoch originally but spun out as a separate business last year.
Rolfe said the advisers at Epoch will continue to use i4C. The firm could also extend it to its other advisers ‘but we are not going to push that’.