Driven by a combination of slower earnings growth and rising cost of debt, the hurdle rate for acquisitions in the sector has risen, causing acquirers to become more selective in their investments and negotiating more contingent structures for transactions. This has impacted transaction activity and valuations, pushing dealmakers towards more creative financing solutions. However, the market is showing signs of a potential rebound from a slow start in the first quarter this year, driven by both secular market trends and potential further cuts in interest rates that began in August 2024.
Despite the headwinds, private equity (PE) continued to be a major driver of M&A in the UK wealth management sector in 2024 and into 2025. Their investment thesis of healthy underlying growth fundamentals and continued strong rationale for consolidation of the sector remain intact. That coupled with more benign equity markets underpinning AUM in the sector has helped underpin a more positive sentiment in the sector of late.
Q1 2025 was a quiet quarter
Q1 2025 saw the lowest total M&A volumes in the UK wealth management sector since 2020 as the number of larger deals dropped while acquisitions of smaller firms valued less than £25m continued at pace.
The quarter included deals in actuarial and employee benefits consultancy, highlighting strong demand for the business model, as well as several deals involving wealth managers helped by the backing of PE capital. It also included moves by groups extending their reach in the value chain as seen by the PE-backed platform Wealthtime buying a sizeable financial planning group to add a new proposition to their organisation. But, the opposite also occurred: AJ Bell streamlined by selling its non-platform SIPP and SSAS business. Meanwhile, the shift from public to private ownership continued with yet another listed entity being subject to an offer. This time it was Kingswood being courted by HSQ seeking to acquire the remaining 10% of the group that it did not already hold.
Private equity was the most prolific acquirer group during the first quarter of 2025, with 86% of the acquirers linked to PE capital, either as direct investors or via their portfolio companies. The PE-backed consolidators accounted for a lot and they continue to be very dominant in shaping the industry. Their local, UK-based backers are gradually being replaced by more international, typically U.S.-based funds, as they reach critical scale. However, refinancings of consolidators have been less evident in 2025, with only one out of the four direct PE investments originating from a North American firm.
Rising interest from insurance brokerage firms and overseas buyers
The wealth sector is attracting more attention from insurance brokerage firms and both strategic and financial acquirers from overseas. With the growing overlap between employee benefit consultancy, wealth management and insurance broking, the opportunity is becoming more viable. This theme has been more pronounced into 2025 and is expected to continue as buyers seek additional sources for recurring revenues, cross selling opportunities and earnings diversification.
Overseas buyers of wealth sector firms became more active last year and their interest has continued to be strong this year, including buyers from Switzerland and the U.S., as well as international PE funds , many of whom already have interests in the UK. This has enforced the shift towards institutional and corporate ownership in the sector. It would be logical to conclude that this trend in recent years would lead to a sharp reduction in the number of smaller, privately owned businesses in the sector but, the population remains so vast (counting several thousand entities) that this ownership development is not yet having a material impact.
In the first quarter, more benign securities markets have somewhat eased the pressures on cost of capital and supported a healthy appetite among investors for quality opportunities for growth. The right advisor can guide firms to maximize the opportunities the market offers amidst increased deal activity.
