Evelyn Partners is a large IFA owned by private equity. Citywire reminds us
The business is the culmination of years of acquisitions, backed by Permira. The PE firm first bought Bestinvest in 2014 and combined it with Tilney.
It grew the wealth managers through several acquisitions, including the buyout of Towry, and finally merged it with Smith & Williamson in 2020. At that point, it brought in Warburg Pincus, another PE firm.
Now Permira and Warburg Pincus want some money back, they would like to sell the businesses on but have no buyers on the open market so they are proposing to sell at the valuation they see fit, to other private equity funds – using a “continuation option“. As far as I can make out, continuation options are ways of keeping a top-spinning when it is danger of toppling over.
They are also looking to dilute the equity of the business by getting it to borrow money to pay them a £400m dividend. They can do this because the business is currently under-weighted with debt, relative to similar businesses owned through private markets.
This is known as dividend recapitalisation which means that in future, Evelyn Partners would need to factor a lot more interest and debt repayment into its business model. The £400m isn’t going in, it’s coming out, there is no new money for expansion, the money must ultimately come from what is thee – customer’s money.
So Evelyn Partners, currently debt light and client rich becomes the opposite, a victim to the need for PE firms to put their Internal Rate of Return first.
This of course will be of little concern to the owners of the businesses folded into Evelyn who by now are long-gone with their earn-outs banked.
What is now happening is the milking of good businesses rather than investment in their continued growth. To quote Aude Doyen, a PE expert working for Lincoln International
‘They are now less about aggressively improving returns and more about managing the expectations of LPs [limited partners]. The current trend in dividend recaps is noticeably less aggressive than in previous cycles.’
It worries me that the recent mania of financial advisers to sell-out to private equity may lead to more continuation options and more dividend recapitalisations. If you really want to speak to an “independent” financial advisor, you may start asking if the advisor is independent of private equity and the threat it may play to the future fees and service you receive.
The business model of financial advisers is changing fast and the wealthy who commit their money to them are likely to be alive to these arguments. If I was doing my due diligence on an adviser, I’d be asking about its ownership, its debt levels and the relationship the management had with external owners. While the current advice might be fine, the relationship with the adviser should be for life. That means the life of the client, not the life of the business.
