Creating value through M&A in financial services
Key Takeaways
M&A is a key growth driver behind UK Wealth Management, with organic growth at a modest level.
The three main drivers of value creation through M&A for financial services firms are: operating leverage, cost & revenue synergies, and multiple arbitrage.
Acquirers should prioritise high-quality targets, effective use of leverage, and deliberate integration to ensure the highest possible likelihood of successful M&A.
The UK financial services landscape — and particularly the wealth management sector — has long been attractive to investors for its resilience and predictable earnings. Revenues are underpinned by recurring fee income, client relationships are sticky, and businesses tend to exhibit strong cash conversion and limited cyclicality.
However, these same characteristics also mean organic growth is often limited. Wealth managers in particular face a demographic headwind: the majority of their clients are older and therefore in the wealth decumulation phase of their financial lives. As assets are gradually drawn down, this offsets inflows from new clients, resulting in relatively flat underlying growth. Against this backdrop, both private equity investors and strategic trade acquirers are increasingly turning to M&A as a core mechanism for growth and value creation.
Why M&A has become central to value creation
A decade ago, there were only a handful of private equity-backed consolidators. Today, more than 40 private-equity platforms operate in the UK market, alongside an active contingent of trade buyers. The investment case for these firms is not predicated on inflated market returns; it is anchored in the ability to acquire strategically, integrate effectively, and generate returns. However, each firm has a different angle. For private equity firms, the target is a 20-30% IRR over a 4-6 year holding period, driven by buy-and-build strategies, operating leverage, and some multiple expansion. Strategic buyers often seek vertical integration plays and benefit from synergies from their current business.
The mechanics of value creation
Scale and operating leverage
Larger platforms benefit from significant operational leverage. As firms grow, the relative cost of compliance, finance, technology, and investment oversight falls — allowing for margin expansion even if top-line growth remains modest. This is particularly true in regulated sectors where fixed costs are high.
Moreover, scale delivers negotiating power with technology providers, custodians, and fund managers, reducing operating expenses and improving service quality.
Cost synergies
Consolidation allows overlapping infrastructure to be rationalised — combining adviser networks, back-office systems, and investment teams. Centralised functions such as HR, marketing, compliance, and finance can be shared across a broader revenue base. The key is integration discipline: successful acquirers move quickly to harmonise systems and processes without disrupting adviser or client relationships.
Revenue synergies and value-chain capture
Beyond cost efficiencies, M&A can also unlock revenue synergies in some cases, particularly where the acquirer gains control of both distribution and manufacturing within the value chain. For example, when a vertically integrated wealth management group acquires an advice-only business — such as an IFA — there is potential, where suitable and in the client’s best interest, to transition clients to a comparable solution within the acquirer’s own central investment proposition (such as a DFM or model portfolio service).
In such cases, the acquirer can capture a greater share of the value generated from the same client AUM, earning both advice fees and investment management (MPS) fees. This vertical alignment can also strengthen client retention, often reduce overall cost to the client, and improve proposition consistency, provided governance and suitability standards are rigorously maintained.
Multiple arbitrage
A well-executed buy-and-build strategy allows acquirers to benefit from multiple arbitrage. Smaller, independent firms often trade at lower multiples compared to the larger, well-integrated national platforms. Thus, the incremental uplift in value on each bolt-on can be material, particularly where the integration model is proven and repeatable.
Financing the roll-up
A core benefit of wealth management is the firm’s cash profile, characterised by recurring fees, low working capital, and limited capital expenditure, which provides a sensible environment for debt financing. Private credit has become a tool used to fund both platforms and bolt-ons, allowing private equity firms to amplify equity returns without stripping the business.
When assessing leverage, it is essential to accurately model post-deal cash flows and maintain sufficient headroom to avoid overleveraging in the event of unforeseen circumstances or market fluctuations. For strategic buyers, debt funding can often lower the cost of capital and provide balance sheet flexibility for future M&A.
Where does the current market stand
Two things characterise current market activity. First, deal flow remains healthy, with a wide pool of buyers and varied deal sizes and valuation metrics. Second, private equity participation remains high, with 23 firms still active in 2025, while many others slowed their M&A activity to focus on integrating prior acquisitions and remain selective in terms of asset quality.
Selecting the right targets
Not all acquisitions are value-accretive. To achieve targeted returns, investors must take a disciplined and analytical approach to assessing bolt-on opportunities. Key considerations include:
Cultural and adviser fit: In people-driven businesses like wealth management, cultural alignment and adviser retention are critical. A high attrition rate post-acquisition can quickly erode value.
Client demographics and tenure: Understanding the client age profile, asset mix, and recurring revenue quality is essential to forecasting future cash flows accurately.
Regulatory and operational readiness: The cost of integration can vary significantly depending on the target’s systems, compliance record, and back-office maturity.
Synergy realisability: Cost and revenue synergies should be tangible, measurable, and achievable within a defined timeframe.
A rigorous valuation process, incorporating realistic synergy assumptions, integration costs, and working capital impacts, is essential to ensure acquisitions deliver sustainable, compounding value.
Conclusion
As the UK wealth management sector matures, both private equity investors and trade acquirers are finding that value creation increasingly depends on disciplined M&A execution. Organic growth remains limited by demographic and structural factors. Yet, through the use of effective M&A, acquirers can build scale, capture synergies, and enhance earnings quality — ultimately generating attractive returns in a sector defined by stability.
In today’s market, the winners tend to be those who are selective in targeting quality, realistic about synergies, conservative in their approach to leverage, and disciplined in their integration. Combining these aspects should convert stable revenues into higher-quality earnings and lasting equity value.
Looking forward
As an adviser with specialist knowledge and deep sector expertise in UK wealth management, Dyer Baade & Company helps owners and managers turn strategy into value. We define the right route, build evidence-based models and investment cases, assess cultural fit and integration potential, model potential outcomes, and work towards the best possible outcome for you and your company.
If you are weighing options and unsure of where to go, arrange an initial strategic M&A assessment using the button below.
