Cash rich firms urged to seize buyers’ market

Advisers that have built up cash reserves over the last few years should look to make acquisitions while it remains a buyers’ market, a study suggests.

A study of the top 1,000 IFA businesses by research giant Plimsoll found the recession has forced almost 360 into loss-making positions and left a further 68 with "unmanageable" debt levels.

It concludes 167 businesses are now "woefully exposed" to being snapped up as bargain acquisitions.

Plimsoll says it has identified 434 companies it classes as "cash rich" but says this money would be better spent financing acquisitions than simply accumulating interest in the bank.

"It is clear that the recession has caused a sea change in the IFA industry and, for companies with cash to spend, there is a pool of targets to choose from," Plimsoll senior analyst David Pattison says.

"With the market starting to recover it is better to spend some of that cash on a discount acquisition than have it sat in the bank."

Another factor feeding the buyers' market, according to Plimsoll, is the number of firms with principals working beyond retirement age.

"How many of these older owners have the appetite to rebuild their businesses battered by the last two years? Of course some will still have the stomach for it but for many a potential sale must be a serious consideration," Pattison says.

Plimsoll says those companies that did not make "quick, targeted cuts" in the face of falling demand are no longer competitive in the current market.

It concludes 788 such companies are now "well behind the curve" and a merger or takeover could be the best way to recoup the economies of scale quickly.