Financial Services: Platform opportunities in compliance advisory attract mid-market PE attention 

Financial institutions of all sizes often require external compliance advice and support. The compliance advisory market is significant and ranges from the Big Four consulting practices through to freelance contractors. The boutique end of the compliance advisory market typically serves smaller to mid-sized clients. It is specialised, fragmented, growing, and continues to attract PE attention.  

Keeping up with compliance  

New entrant and mid-sized financial institutions can struggle to manage regulatory compliance with available in-house resources. They often look externally to supplement their inhouse compliance teams due to a lack of capacity, a lack of expertise, cost, and general concerns about the risk of regulatory enforcement down the line.  
The relationship with a compliance consultancy frequently starts with support on the FCA authorisation process and evolves into long-term advisory support either through retainer agreements or bespoke ad-hoc projects. This is an attractive business model for investors with a sizable portion of recurring revenue and a transparent revenue base. 

Trusted advisors 

Compliance advisory firms provide expertise, efficiency, and usually possess strong relationships with regulators. Their clients trust them to help meet rigorous regulator expectations. Once established, these client relationships are sticky and offer opportunities to sell on further services. 

A core part of the organic growth strategy is growing the client book through referral networks. Referrals come from adjacent professional services providers who also serve small to mid-sized financial institutions (e.g. lawyers, accountants).  

Typical service lines of compliance advisory firms include: 

  • FCA authorisation support 
  • Compliance advisory (via retainers or bespoke project work) 
  • Outsourced compliance support (e.g. audits, file reviews, reporting) 
  • Regulatory M&A due diligence 
  • Compliance training 
  • Compliance staffing solutions 
  • Compliance software products 

What investors are asking 

UK financial services compliance advisory services is a highly fragmented market. The Association of Professional Compliance Consultants (APCC) have over 150 members ranging from generalists to niche specialists operating in a specific regulatory area or sector. We have seen potential platform assets coming to the market in the last two years and expect to see more in 2024.  

A challenge for investors is how to segment the market meaningfully. There are many ways to divide up the market and it is difficult to benchmark a consultancy’s capabilities against its nearest competitors. In response we have created a framework to help investors and management teams segment this complex market and pinpoint where they can create value. 

Here are some common questions we have helped PE and management teams to answer: 

  • What is the size of the addressable market opportunity given narrow specialisms across FS verticals, regulatory areas, and service lines? 
  • What are forthcoming regulations likely to be, and how can a provider best position themselves to take advantage? 
  • What truly differentiates providers from each other? How can a provider protect against losing its own clients to its close competitors? 
  • What is the end-to-end client lifecycle? At what stage is the provider at risk of being replaced with the client’s in-house compliance function? What are the implications of this on the business plan?   
  • How does the referral network actually work? How successful is it in generating new business? How can it be further developed to win a greater share of referrals? 
  • What cross-sell/up-sell opportunities exist with the current client base?
  • Is buy-and-build a viable strategy in the market, and if so, what is the optimal strategy? How do M&A targets fit into an accelerated (inorganic) business plan? 
  • How is technology being used internally to improve margins? 

Please get in touch with a member of the team if you would like to discuss opportunities in the FS compliance advisory market. 

Solomon Ishack

[email protected]
+44 7943 036 633

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