And so we bear down on a full year since all this madness began. Next week will mark the anniversary of when we shut the office; seems like twice that. For those readers in Engerland with kids, I hope the return to school has been good; ours is next week and it really can’t come soon enough.
In what has otherwise been a pretty remorselessly depressing week, full of performative outrage and mindlessness, it’s good to have something to distract us, and I’m pleased to say that another piece of corporate activity twice the size of the Royal Barge has hoved into view to do just that.
Yes, it’s Parmenion’s turn to step aboard the – beep beep – change of ownership bus. As you may well have read yesterday, private equity firm Preservation Capital Partners has taken up where Aberdeen Standard left off with a ticket price of £102m for Parm’s £8bn or so of assets.
First, the most important bit. The news broke on a Tuesday, which is precisely the right day of the week to announce something like this; it means it’s still new enough to cover in the Update but that I have a bit of time to get my head together. This shows a WELCOME LEVEL OF RESPECT AND COMPLIANCE WITH MY REQUIREMENTS that frankly is missing elsewhere, including from my children. So long as we’re all on the same page yeah? Good.
So, the private equity money truck has backed up to the sector once again (actually twice again with today’s news from Skerritts). I’m on the record as having misgivings about private equity involvement in the sector – see Updates passim – it all looks good on a PowerPoint slide but when things don’t go so well disturbing things can happen. PE is not a soft source of capital and the people that run these firms are – have to be – uncompromising in working towards their exit and a big profit; exactly how that is achieved is interesting but ultimately what their investors will remember and reward is a chunky reward on investment. When we are getting excited about the money sloshing around, it’s tempting to see PE as some giant piggy bank with no strings attached. It’s not, and there are.
All that said, I’m positive about the Parmenion acquisition. A few reasons for this: PCP has paid a pretty good price for its new signing. There were no shortage of other suitors; we’re aware of four or five. So it must want the business, and it’s good to have a parent that wants you. As a frame of reference, Parmenion went for £12.75m per £1bn of AUA. Ascentric went for £86m with £14bn of assets; that’s £6.14m per billion or just under half Parmenion. And Nucleus is valued at £145m with about £18bn AUA – that’s £7.88m per billion. Quite a difference. Different businesses, different models – but eye-catching nonetheless.
Secondly, PCP doesn’t own any other platforms. Its other signings are insurance businesses; no mileage to be made in smashing these together with Parmenion. Unlike Epiris and Anacap, its strategy doesn’t seem to be one of consolidation. Its portfolio page gives a hint of what it likes (and obviously this is #marketing, but still…) – “The business’ discretionary fund management (DFM) proposition is a critical component of value and growth potential…Continued organic growth should drive material value creation with further upside opportunities from consolidation within the wealth management market…Parmenion is highly scalable, well invested and on the cusp of critical mass; significant operational leverage expected as the asset base grows.”
The things you’re looking for there are that the vertically integrated nature of Parmenion remains central; that’s what lets it make its offering simple to use and what’s behind the stratospheric user satisfaction scores we see in our adviser platform ratings. Organic growth remains important, and PCP plans to make some of its return from ‘operational leverage’ which is PE for ‘loads more assets, not many more staff’. There is some mention of consolidation, but within the wealth management market which suggests Parmenion will position itself as a home for larger firms, probably using its Appointed Investment Adviser model where it co-creates discretionary models with the firm under its own permissions.
That resonates with me – Parmenion has loads to like, but just doesn’t play nicely with other offerings. It’s a DFM with a platform attached, really, and to smash it into (say) a Novia or a Nucleus just doesn’t feel like a natural fit. Similarly, acquisition by an asset manager would risk, er, natural exuberance leading to a slant in portfolios which would make life harder for firms on suitability grounds.
So a parent – PE or otherwise – which wants Parmenion to grow on its terms feels like the right sort of thing. Of course, this is only the beginning and if the AUA graphs don’t move up and to the right pretty sharpish the conversations will all change. But that’s life in the aluminium siding business.
MANY, MANY LINKS
- No shortage of other news to share. First up, you’ll shortly be seeing a new Seccl-powered platform out there – this time it’s an interesting hybrid advice type model.
- Results time – interesting stuff from Quilter as it moves towards a self-employed model for Intrinsic
- SimplyBiz is a bit like LVMH, apparently…
- And one from us – HomeGames this week sees our very own Craig Rickman on his maiden voyage as he speaks to David Ricketts, Dow Jones journalist and author of When The Fund Stops, all about the Woodford saga. Going to be reeaaallllly interesting this one. Come join at 12.30pm here, or on the YouTubes
- Your music choice this week is from your queen and mine, PJ Harvey. She’s reissued a cleaned-up video of This Is Love which is awesome but possibly mildly too fruity for a family Update such as this. So your choice instead is my very favourite Peej song. Two minutes and 23 seconds of absolute perfection. Please do enjoy 50 Ft Queenie, sound UP.
See you next week for our Lockdowniversary