GROWTH STORY WEALTH AT WORK

A long-term commitment

Equistone’s investment in pensions manager WEALTH at work demonstrates the importance of trust, integrity, in-depth knowledge of thematic opportunities and the value of (very) long relationships.

JANUARY 2020

TWENTY-TWO YEARS ago, Barclays Private Equity (as Equistone then was) concluded a tremendous investment in Nelson Money Managers, making 3x money and a 68% IRR. Happy days, and ancient history.

But Equistone deals aren’t transactional, they are relationship-driven, and the firm maintained its relationship with David Cassidy (founder and CEO of WEALTH at work, pictured above), who led the MBO, for decades. In 2004, many years after the Nelson exit, a newly arrived deal-maker, Steve O’Hare, was introduced to David.

“I liked David immediately and we connected on a personal level. He had just launched this very interesting new venture and was clearly a fantastic leader. Over the years we stayed in touch, meeting for coffee or lunch, or grabbing a beer after work.”

I was impressed with the level of understanding Equistone brought to the table.

David Cassidy
CEO, WEALTH at work

David had founded a new business in 2004 called WEALTH at work (WAW), having noted an opportunity arising from the shift to defined contribution pension schemes. Working with JP Morgan, he created a business to advise retiring workers who would be taking a more active role in the management of their pension pots.

He recognised that corporates would support their staff through this process, and that the staff would require wealth management services to steward their retirement income. Liverpool-based WAW created a distribution model to provide educational seminars to corporate staff, who could then sign up for financial advice. This created three revenue streams and a predictable pipeline of clients.

Osborne’s reforms

In 2014, Dominic Geer, a specialist financial services investor in the Equistone team, recognised the substantial value creation potential for a business model like WAW’s following pension reform announcements in the 2014 Budget. The then chancellor had laid out a “pension freedoms” policy, removing the obligation on retirees to invest their pension lump sums in an annuity from the start of the 2015 tax year.

Dominic’s thematic mapping of the market revealed significant upside for wealth managers that had, or could build, distribution models like the one David and his team had developed at WAW. Dominic shared his analysis with Steve, who arranged a meeting with David.

Equistone Senior Partner and UK Country Head, Steve O’Hare

David recalls how well-prepared Steve was when they met in early 2015, and the clarity with which he was able to outline how Equistone and WAW could potentially work together.

“I ran through the slides with Steve and I was struck by how well he understood our business and the insight he had into the opportunity the pension reforms,” says David. “You have to remember that the reforms hadn’t come into force yet, so many were still trying to get their heads around the ramifications. I was impressed with the level of understanding Equistone brought to the table.”

At the end of the meeting Steve asked David for permission to approach Palatine Private Equity, the owners of the business at the time.

“We were very happy with Palatine and had grown the business. Steve was sensitive to that. He wanted to do things respectfully and in the right way,” David adds.

In the meantime, Dominic travelled up to Liverpool to meet David and his team, and afterwards shared ‘a scouse meat stew’ together. “Steve had nurtured a good relationship with the management team and with Palatine, says Dominic. “The combination of those personal connections and our technical understanding of the asset enabled us to take deal negotiations off-market.

Equistone played straight with Palatine and management, structuring the deal thoughtfully, to allow Palatine to retain a minority stake, as well as ensuring a sizeable rollover by management.

“I have known Gary Tipper [of Palatine] for a long time,” says Steve. “Gary trusted that we were serious and that we would deliver. That trust is built up over a long period of time.”

Dominic also emphasises the importance of such investment. “All of the partners at Equistone work incredibly hard to build our reputation in the market as a house that behaves with integrity and can be trusted to do what it says it will do.”

Trust and Conviction

Although WAW had more than doubled its assets under management in the three years prior to Equistone’s investment, the business had been loss-making and only turned its first monthly profit in February of 2015, just a few months before the deal. The decision was therefore taken to do the deal entirely with equity.

“I don’t think it is unfair to say that at another firm Steve and I would have been told: ‘Nice little business but come back in a couple of years when it is bigger and profitable.’ Our culture here is different. When you believe in something, the investment committee will hear you out. You will be challenged, but the committee is open to different views.”

Dominic and his team worked with management to build a worst-case-scenario that showed cash flows from existing AUM would cover Equistone’s proposed investment within five years.

Despite the unusual valuation metrics for the deal, the embedded value of WAW’s current assets, the high predictably of the business model and the quality of the management team won investment committee support and the deal was secured and announced in August 2015.

I don’t think it is unfair to say that at another firm Steve and I would have been told: ‘Nice little business but come back in a couple of years when it is bigger and profitable.’ Our culture here is different. When you believe in something, the investment committee will hear you out. You will be challenged, but the committee is open to different views.

A good fit

David had made it clear at the outset that his focus was on building the business organically rather than via consolidation. He was open to strategic deals that would expand the company’s model, but not in the amalgamation of cash flows. The exception was Life Academy, a good strategic fit that had been identified prior to Equistone’s investment and was completed shortly after. But then, the team introduced David to Affinity Financial Planning. It was a deal he just couldn’t refuse. Affinity was a business running a similar workplace seminar model to WAW, in the public sector.

“Affinity was exactly the kind of business we were interested in, and it was Dominic who brought it to us towards the end of 2015. We know this market well, but we hadn’t actually heard of Affinity,” David says.

The company’s assets under management have more than quadrupled to circa £1.7 billion over the last five years, and the business, which still carries no debt, is now enjoying the benefits of prior investment, with profits climbing in the double digits year-on-year. WAW’s assets under management meanwhile, the crucial sector measurement, have expanded at a compound annual growth rate of more than 30% over the past four years.

Meanwhile, David, now into his third decade of being an Equistone portfolio company CEO, is also upbeat. “There is no question that we chose the right people. This is not because they are nice, which they are, but because they really understand our vision for the business and what it needs.” ☐

A full version of this article appeared in PLATFORM 03, Winter 2019/20