During its 13-year hold period, Palamon enacted a buy-and-build strategy at Towry so ambitious – and successful – that the business ultimately sold in 2016 bore little resemblance to that acquired in 2003.
“PE can have a reputation for being short-termist. Palamon’s involvement is the opposite,” said judge Miles Graham. “There is no doubt that the business they exited was operationally at a whole different level to the one the made the commitment to at the start.”
Palamon originally invested in the UK’s highly fragmented independent financial advisor industry following thesis work that showed significant changes underway which would open up opportunities for the creation of a new national leader.
The first acquisition was Buckinghamshire-based John Scott & Partners, a player with 13 advisors and an EBITDA of £900,000. Unlike its peers, this business had an integrated model combining financial planning and investment management. It also operated a fee-based model instead of working on commission. The firm then embarked on an accelerated acquisition programme, completing 16 add-on acquisitions in total during the hold period, including the reverse takeover of Towry Law in 2006.
As well as institutionalising the management team – bringing in a CFO, an operations director, a head of advisors to manage the advisor pool, a head of proposition to make sure the client offering was structured and standardised, and a head of HR – Palamon worked with the company to establish a board. This attention to governance stood the business in good stead when it came to applying for change of control approval from the Financial Conduct Authority, which was required every time the team made an add-on acquisition.
Palamon also worked hard on honing its integration process, investing in extensive training programmes to help advisors adopt the Towry financial planning and client fee-based model. “A very impressive buy-and-build story reflecting a deep understanding of industry dynamics and a clear execution strategy against a well anticipated changing market environment,” judge Thomas Pütter said. “A 27 percent revenue growth CAGR over 13 years and resultant efficiencies in scale evidenced by a 36 percent CAGR in EBITDA over the same period are nothing short of very remarkable.”
The work was critical in positioning Towry as the leading industry consolidator when the FCA announced its long-awaited Retail Distribution Review in 2011 which abolished commission-based advisor fees and forced the industry to adopt a fee-for-service model.
“In a regulated environment the challenge of creating institutionalised management with scalable capacity and maintenance of quality and compliance is significant,” Pütter said.
When Palamon sold Towry to Permira-backed Tilney BestInvest in April, the company’s assets under management had increased from £250 million on entry to £9 billion, its enterprise value had shot up from just £9 million to £600 million, and EBITDA had mushroomed from £900,000 to more than £36 million.
“Towry is a remarkable case of the power of operational excellence and active private equity ownership,” said judge Katja Salovaara.