Sargisson: Falling value of SIPP firms will stall takeover deals

The consolidation of the SIPP provider space will be stalled by the declining value of some firms, according to Tim Sargisson, managing director of James Hay Partnership.

Rising regulatory costs are encouraging smaller SIPP providers to sell up to larger firms, Sargisson said, but warned the process will not be as smooth as expected.

"Small providers are thinking ‘enough is enough' and attempting to cash in now," Sargisson said.

"However, valuations will trip up the consolidation process. Firms will be valued at far less than people expect."

Sargisson said rising Financial Services Authority (FSA) concerns about esoteric investments within SIPPs are forcing providers to spend more on due diligence.

Planned increases to capital adequacy requirements are also piling pressure on operators.

The effect is driving small providers to sell up, but dragging down the value of their businesses as potential buyers fear the liabilities within SIPP books, Sargisson said.

He said smaller providers encouraged by Suffolk Life's £62m sale to Legal & General in 2008 will be unpleasantly surprised by the value of their own companies.

Sargisson said demand for full SIPP products, rather than simplified SIPPs with less functionality or those based online, is also pricing small boutique providers out of the market.

However, Sargisson said James Hay Partnership is definitely "a player in the consolidation space" and will buy up smaller providers if the price is right.

At a conference last month, FSA pensions investment policy manager Milton Cartwright revealed the regulator had found evidence of widespread malpractice amongst SIPP firms.

Cartwright also said there could be dramatic increases in the capital adequacy requirements placed on SIPP firms.