Daniel Harrison, chief executive of recently-acquired Financial Planning and wealth management firm True Potential, has warned owners of Financial Planning firms to beware of over-generous offers for their businesses.

Talking to Financial Planning Today after the firm’s £1.6bn deal with private equity firm Cinven, he said he believes high bids for planning firms may be the wrong move for planning firms.

He said he believes finding the right long term partner to support business growth is far more important than the highest bid.

Earlier this month private equity firm Cinven announced it was to acquire the Newcastle-based firm, one of the UK’s largest financial advisory businesses, in a deal experts have estimated to be worth between £1.6bn and £2bn. 

Mr Harrison says while the deal was substantial it was more important for True Potential to find the right business partner than chase the highest bid.

True Potential will sell a majority stake in the business to Cinven, an international private equity firm with substantial interests in financial services. The acquisition marks the latest move by private equity firms to take controlling stakes in many UK wealth managers and Financial Planners.

True Potential has acquired numerous Financial Planning firms itself in the past five years.

Mr Harrison said he expects the Financial Planning sector to continue to attract investment from private equity firms, but Financial Planners need to be sure they are picking the right partner rather than being tempted by a generous offers from a private equity firm that is not the right partner for them.

He told Financial Planning Today: “We’ve turned down many private equity deals over the years because the offers haven’t met our strategic goals. With Cinven, we have found a long-term strategic partner who will help to propel the company forward – and more importantly – one who values the expertise and insight of our existing management team, all of whom will be remaining in place.”

He said Financial Planning firms need to make sure they look for the right partner: “That may sound obvious but it’s easy to be tempted by a generous offer. You need to have a shared vision and a common understanding because if you set off on the wrong footing, it’s unlikely to work out well in the end.”

Financial details of the Cinven transaction have not been disclosed but reports suggest the deal potentially values True Potential at between £1.6bn and £2bn. While the figure is substantial it is less than the £2.5bn valuation True Potential is believed to have been targeting.

The deal will mean potential windfalls of hundreds of millions of pounds for chairman and founder David Harrison and his son Daniel who is CEO.

Daniel Harrison told Financial Planning Today that they expect Cinven to be closely involved with the existing management team at board level but they will continue to run the business on a day to day basis with little involvement from their new parent.

He said one of the reasons they were attracted to partnering with Cinven was to ensure they, "stay ahead of the game."

He said: “True Potential was already on a strong growth trajectory, even without this investment. This decision to partner with Cinven is about making a great business even better. The purpose of this deal is to ensure our integrated wealthtech platform remains at the head of the pack and that our growth as a business continues along its rapid and rising trajectory, ensuring that our clients and advisers continue to benefit from our technology.”

When it comes to advice for other Financial Planning businesses looking for investment, Mr Harrison told Financial Planning Today that he thinks the key is to make sure foundations are strong and the firm is structured properly.

He said: “I think the key is to take a long-term view and to make sure you’re structured properly to take advantage of market conditions. What investors want is to be part of your growth story, so you’ve got to be able to show them that you have an ambitious plan, rooted in strong foundations.”

True Potential operates a broad wealth management business and has its own investment platform and fund arm. It has more than 1.4m retail clients in the UK.

The North East firm was founded in 2007 by chairman David Harrison and CEO Daniel Harrison. The business employs more than 350 and works with 800 restricted advisers. The firm claims that about 1 in 5 of the financial adviser market in the UK uses True Potential’s technology and support services.

True Potential is expected to have over £20 billion of assets under management and to generate about £135m of EBITDA for the year ending 31 December 2021.

The deal is subject to regulatory approval.