Key drivers of a successful buy & build strategy in the financial services sector

Thoughts from Rupert Brown, Investment Director and Financial Services Specialist.

Buy and build is a key growth strategy for the vast majority of Palatine’s portfolio companies. Around 80% have completed at least one acquisition during the investment period, totalling more than 170 across the last decade.

It’s a smart approach which can prove effective in multiple industries, but there are sectoral dynamics that render it more impactful in some. Executing a buy and build strategy in industries which are either fragmented, or enjoying the efficiencies and growth potential afforded by digital transformation, can be particularly impactful.

Many sub-sectors of financial services fit both criteria and the case for buy and build-driven growth is particularly strong. Palatine has deep sector experience, having invested six times in FS in recent years.

Parts of the market, in particular wealth management and insurance distribution, remain highly fragmented. The plethora of owner-managed businesses provides a strong supply of targets for well-invested businesses led by ambitious management teams looking to rapidly consolidate market share.

There are sector-specific economies of scale that can be harnessed to unlock value efficiently too. These can relate to sharing the sector’s heavy regulatory burden across a wider more-well resourced group; along with improved commission structures in distribution businesses as they scale; and importantly improved customer service from being part of a larger and well invested group.

Successfully harnessing these opportunities to create value requires a coherent and focused acquisition strategy; followed by a comprehensive approach to integration and consolidation if the business is to benefit from the synergies. Critical to any integration plan is putting the customer at the centre to ensure continued and enhanced service provision.

Two of our current FS portfolio companies, Suntera Global, and Wren Sterling, are prime examples of how to execute buy and build to good effect.

Suntera is a leading international provider of fund administration and corporate trust services. Headquartered in Jersey, the company now employs over 200 people across seven global offices, which include Jersey, Switzerland, Malta, Hong Kong, Cayman Islands and the Bahamas.

With our support, the business has made three acquisitions since Palatine’s investment in 2019. This has driven a twofold increase of EBITDA and delivered entry into new territories with further in the pipeline.

Wren Sterling is an independent financial advisory business serving both private and corporate clients across the UK. The business has more than 100 advisers based in eight regional offices and over £4.6bn of assets under advice. Having initially invested in the centralisation of core services, we have supported the team in completing eight targeted acquisitions with several more in the pipeline. The buy and build approach has been instrumental in doubling revenue since our initial investment.

In each instance, we worked with the management teams to ensure there was a solid platform in place ahead of the acquisitions. Both Suntera and Wren Sterling have invested in industry-leading software to ensure a smooth integration of the acquired businesses. This was particularly important for Wren Sterling, allowing the team to seamlessly transition the acquired customer assets onto its systems ensuring there is no customer detriment which is key in any FS acquisition

The significant upfront investment in both people and systems to meet compliance requirements has set the wider, enlarged groups up to grow sustainably in the highly regulated financial services sector.

The financial services sector has evolved considerably over the last decade. There is little sign of that slowing down in the years ahead. Whether adopting innovative fintech solutions, or answering new consumer demands for an increasingly personalised and instantaneous service, successful FS businesses will have to remain agile and open to rapid change. Those which thrive will be suitably backed, well-advised, and willing to execute smart buy and build strategies.