The professionals

It’s easy to see why professional and financial services firms are attracting private equity investment – recurring revenue, room for efficiencies and potential improvements from investment in technology. Last year saw the Apax acquisition of Evelyn Partners professional services business (now S&W) for £700m and the majority-stake investment Cinven took in Grant Thornton’s UK business. And there was also the secondary buy-out of accountancy firm Cooper Parry by US fund Lee Equity Partners.

The sector is increasingly in vogue for investors, both from the UK and overseas. Financial services and professional services are two growth sectors specifically identified in the UK government’s industrial strategy. This might mean either government support or assistance through lighter regulation. And it’s not just private equity investors. In April MHA – the UK arm of Baker Tilly – raised £98m with a flotation on AIM, that gave it a market cap of £271m.

“There must be a good 30 US private equity funds with offices in the UK now, and the same number again looking actively to invest from the US,” says Duncan Chandler, who heads up financial services M&A at BDO. He points to New York-based Lee Equity’s secondary buy-out of Shackleton, the financial advisory and wealth management firm, after the firm went through a four-year buy-and-build process, backed by UK private equity firm Sovereign Capital. He views that as emblematic of the current market dynamic, despite what he refers to as the “macro news” – including a weakening dollar.

Mature market

Chandler sees the size and relative maturity of the UK financial services market as the attraction, but then adds: “On the other side, there are still many inefficiencies, long term but also short term, just because the market evolves so much with the onset of fintech and data, which provide new opportunities for growth and disruption.

Chandler points out CVC and Nordic Capital’s £5.4bn take private of LSE-listed Hargreaves Lansdown, the UK’s largest investment platform for private investors, completed in March 2025. “What they’re saying is that there’s a really good market opportunity here, but this company with a great customer base has got things wrong and probably got some pretty bad tech.

“The UK is a mature market with a very big and wealthy middle class that needs advice and investment management capabilities, but the market is not sewn up, so it’s quite an exciting target and people who get it right can make some good returns.” And, he adds, “Private equity houses are keen – some people say desperate – to get money out of the door and buy and sell assets.”

Dry powder

The much-talked-about surfeit of dry powder in private equity is forcing funds to focus on “not just returns, but how much distribution you’re getting back to your investors, with increasing scrutiny of how they’re exiting existing assets”, Chandler says.

Baber Din, Deloitte’s UK M&A and private equity market leader for the financial services sector, says: “You definitely have a trend of US-based private equity who’ve seen strategies, particularly in insurance distribution and wealth management be successful in the US, viewing the UK market as being somewhat analogous and seeking to effectively deploy the same strategy here.

“Insurance distribution and wealth management are still both relatively fragmented sectors,” he continues, “so you can create value through acquisitions bought at lower earnings multiples. And when you exit, you’re a bigger business with higher multiples on all earnings. But also, on the insurance distribution side, as you scale up you can improve the commissions you get from carriers. And there are very well established value-creation strategies on the wealth management side, as you become more vertically integrated and retain more of the revenues across the value chain.”

This is particularly true in the mid-market, with Din adding: “This has certainly been the busiest space for us in terms of deal volume, and much of that has been fuelled by private equity.” He says he can only see this continuing, as his firm is conducting a good number of vendor due diligence exercises, which is a fair predictor of “processes that will come to market in autumn”.

Debt for FS deals

Debt funding is available for deals, says Din: “That side of the market is open. My colleagues who work on refinancings in the financial services space have been very busy, as many businesses have been successfully refinancing on to better terms or bigger facilities to help fund their growth and optimise finance costs. But it’s still a complex macro.

“Despite that, it feels like people are getting on with it because I think they don’t have any great certainty that the macro is going to get less complex in 12 or 24 months.”

Blackburn also points to uncertain times, an abundance of dry powder and “private equity looking for safer places to invest their money” as the factors that are driving the market for financial and professional services deals where, he says, “you’re looking for fragmented markets – individual markets where there is a large number of acquisition opportunities. You’re looking for value creation opportunities. Where can you expand margin? Where can you deploy technology? Those things that private equity are good at. And when you go through the financial and professional services sector, they will tick a significant number of those boxes.”

KPMG’s head of business services M&A, Neil McManus, has a particular focus on professional services and extensive experience in accounting and legal M&A. “Typical private equity investments include a mix of upfront cash and equity participation for the existing partners or leadership team,” he says. “That means they’re still invested in the future performance of the business.

“Buy-and-build is absolutely the dominant strategy,” he adds. “Most funds start by acquiring a platform of reasonable scale and then build through bolt-on acquisitions. The idea is to grow earnings primarily via M&A, taking advantage of both synergies and multiple arbitrages. In other words, investors are buying smaller firms at lower valuations and creating value by integrating them into a larger, more scalable platform.”

Insurer returns

Blackburn says some sub-sectors have been through “a number of cycles of private equity consolidation, and others are in an earlier stage”. Insurance broking has been in PE-backed consolidation for around 20 years, and while that market is now less fragmented and therefore less ripe for consolidation, the playbook has demonstrated it can drive returns, so “with something like legal services, where private equity really is only coming in within the past 18 months, they see a fragmented market and an opportunity”.

One financial services area less attractive to private equity at the moment is banking, which Merali says “is very difficult because it’s very capital intensive”. In that sector the trend is for trade deals and consolidation, with Coventry buying Co-op, Nationwide buying Virgin, and Santander acquiring TSB.

While secondary trades are still the dominant form of exit in the rest of the sector, BDO’s Chandler says: “Often the most successful exits are when private equity can sell to a big business who can see and therefore will pay for a strategic component to the valuation.” Also, for “PE-held business of scale”, even the IPO market is “just about showing signs of life”.

Blackburn observes: “There’s a lot more choice now than there would have been even 10 or 15 years ago, when you might have had a couple of cycles of private equity, but then you probably needed to list the business or sell to a large plc. Now, with the amount of capital available, as the business grows there’s likely to be somebody with pockets deep enough from their capability and appetite to take you to the next level, assuming the equity story still makes sense and that you can deliver the returns. I guess that’s where, in some sectors, it can become more challenging: the bigger you get, the more you have to grow.”