IFA Consolidator Abandons Lighthouse Group Bid

Tom Burroughes

23 March 2016

, which it says has limited growth prospects.

On 17 March, when it had issued a statement following a 35 per cent surge in the price of Lighthouse, AFH said it is not making a bid. On 9 March, it had made its initial approach.
AFH said it has a “healthy pipeline of potential IFA acquisitions”.

Organisations such as AFH are acquiring financial advisor firms to exploit changes to the landscape for wealth management in the wake of new regulations that have driven up costs, forcing smaller, financially weaker businesses to sell, merger, or join networks. In particular, the Retail Distribution Review reforms, which took effect in 2013, have had a large impact. Aggregator organisations include AFH, Focus Financial, Succession Group, Sanlam and Bellpenny. Other business models include firms where partnerships ally with a larger organisation, such as St James’s Place and Raymond James.

"We are naturally disappointed with the reaction of Lighthouse to our indicative proposal which included a mix and match structure for individual Lighthouse shareholders. AFH, with its extensive track record of M&A to date, continues to progress its stated organic and acquisitive growth strategy and looks forward to updating the market in due course,” Alan Hudson, chief executive of AFH, said in a statement.

In its statement, AFH said its initial approach to Lighthouse was designed to explore a deal beneficial to both sides, with AFH making an indicative offer of 13 pence per share, representing a premium of 26.8 per cent to Lighthouse's share price on 8 March. In addition AFH said that at least half of any consideration would be in cash with a mix and match option available to accommodate the individual interests of Lighthouse shareholders.

AFH said its indicative offer recognised Lighthouse's “limited growth prospects under its current strategy and as reflected in market expectations, its inability to make further distributions or other non-trading payments from its regulated subsidiaries without FCA consent and the acknowledgment that approximately 50 per cent of its cash was required to be retained for Regulatory purposes”.

“The board was disappointed by the reaction of the Lighthouse directors not to engage in discussions and is surprised by subsequent statements that indicated that Lighthouse did not seek to consult its shareholders before rejecting AFH's approach,” it continued.

“The board of AFH believed that a potential enlarged group would have brought efficiencies and cost synergies. In addition they believed that access to AFH's proven model would have generated additional revenue and margin for the combined businesses. Given the lack of willingness by Lighthouse to engage, together with the share price movement which has prevented further confidential discussions, the company cannot carry out what it considers to be the appropriate level of due diligence within the time period imposed,” it said.

AFH has bought firms such as Origin Financial, Quest Financial Management, Davisons Financial Management, Independent Financial Services (UK) and Clarendon Financial Solutions, along with a raft of other businesses.