Behind the frosted glass and across the executive boardroom tables, what actually goes on when acquisitions deals are struck, or when one firm decides to invest in another?

How do companies assess which deals are worth taking forward, and which transactions are better left undone? And what does it take to get to that crucial point where both parties are happy to sign on the dotted line?

One man who knows is Din Mustaffa, group chief strategy officer at FNZ. When he joined the tech provider in 2018, FNZ had been growing organically since the company was founded by group CEO Adrian Durham in 2003.

Din was initially hired as part of a new corporate development team responsible for acquisitions, investing in start-ups and strategic partnerships.

He took on his current role in 2021, supporting FNZ’s shift from a largely UK focused business with 1,400 staff to a global one with 6,000 people, laying claim to US$1.5trn in AUA.

We spoke to him about how a company like FNZ goes about acquiring and investing in firms, to get a window onto the deals that drive much of the platform development we see today.

Din points to the role FNZ and others have played in “helping to build up the infrastructure” that has led to the growth of the platform and MPS markets in the UK. He also offers some interesting parallels between big stakes corporate finance and firms going through their own acquisition journey, whether as acquirer or acquiree.

Entering the FNZ stable

Din’s career has been shaped around investment brokerage and due diligence in various guises across wealth management, corporate finance and financial planning. He also has experience at the coalface, having worked as a paraplanner while at international multi-family office Flemmings.

Din says typically acquisitions have to meet specific criteria. In the early days, deals were focused on providing an entry into new markets.

FNZ’s first ever acquisition came off the back of talks with businesses in Germany, who wanted to know whether the company had the banking licence needed to operate a cash account on the platform, a specific German requirement. That led to the acquisition of German investment platform ebase, now FNZ Bank, and similar acquisitions in the US, Europe and Asia.

Since then, the tech provider has brokered a number of deals geared around tech and wealth management. For example:

• Swiss firm Appway, which supports digital client onboarding and “no code/low code” workflows
• New Access, also based in Switzerland, offering private banking technology
• Bondsmith, which offers integrated cash savings for platforms
• Nokkel, aiming to bring property wealth into financial planning.  

One trend he and FNZ have focused on recently is personalised investments, and in particular portfolios built to reflect clients’ values.

This led to the creation of FNZ Impact, providing a ‘look through’ of clients’ investment holdings to show how underlying companies are rated from an ESG perspective. This tech also underpins Aviva’s ESG Profiler tool.

How deals are done (and when they’re not)

Din says when looking for companies to invest in, it is about how well they fit, not just at a strategic level but also in terms of tech, people and culture.

He says: “At the point when we speak to companies, we already have a good feel about how suitable their proposition is for FNZ. Not doing a deal wouldn’t necessarily be related to that. It’s more around things like if a product or service is built on technology that we don’t think is really scalable.

“Clearly, if the actual functionality is not in line with what we thought it was, then it doesn’t meet that initial criteria.”

These assessments are taking place alongside all the other due diligence you would expect – the business’s numbers, and compliance with regulatory and legal requirements.

But for Din it comes back to the product or service underneath it all.

“I personally love attending demos of the product itself, that’s always exciting. What’s also important is spending time with the management team and the business to get a feel for how you might be able to work together going forward… Sometimes we get it wrong, but mostly we get it right.”

As a case in point, both chief technology officer Hanspeter Wolf and chief product officer John Blackman joined FNZ following acquisitions.

Din explains that the process of deal-making varies from company to company, based on things like the nature of the talks. For example, whether it’s a transaction being negotiated privately between the buyer and seller (known in M&A as a bilateral discussion), or an auction process.

But generally, there’ll be an initial discussion between FNZ and the management of the business, the owners and/or any minority shareholders. After that FNZ would issue a letter of interest then carry out due diligence and, as part of that, agree terms.

There is a bit of leeway where minority stakes are concerned in that FNZ isn’t expecting firms to be the finished article, but there is an expectation that at the heart of the business lies a “killer proposition”.

“The point we invest is typically at seed or very early stage. So you wouldn’t expect start-ups to have a lot of processes in place. But you do get a sense when speaking to the management about things like how plugged in are they to the market? What is their knowledge base? How are they running their business?

“Based on that you’ll make a decision about whether it’s a business that is good enough to back or not. Businesses on a bad day can fail, especially in this market. But if the proposition is a great one, especially something that can really support our customers and their clients, then that’s something we will still look into.”

He adds that for all the acquisitions and investments that are announced publicly, behind the scenes there will be transactions that FNZ has decided not to pursue.

Cheap money and swivel chairs

Away from acquisitions, the worlds of advice, planning and financial services can often lag behind people’s experiences elsewhere. This is something Din is conscious of – clients expect their investing experience to be on a par with booking a taxi through Uber or a finding a place to stay via Airbnb.

He says while there continue to be innovations in the market, there are products and services that have hung on for longer than they should, fuelled in part by low interest rates.

“The last decade has seen a period of cheap money where, in my view, we’ve had a number of unsustainable ideas continuing to survive on the back of multiple fundraisings, while not really generating revenue.”

Din sees it as a good thing that we’re no longer in that kind of market. For start-ups, new money won’t be coming in to the same extent, and that brings with it a greater focus and clarity.

“I came across a start-up in the US which over the last six years has raised $100m. But it’s only this year that it’s about to achieve $1m of revenue. And you think to yourself: how is that logical?”

Bringing it back to advice professionals, FNZ wants to solve what it calls the ‘swivel chair problem’, which Din describes as a reliance on different pieces of disconnected software to deliver the planning process, from practice management to cashflow to assessing risk to investing.

He suggests platforms can be “the centre of the wealth management and financial planning experience…so they can focus less on ‘moving their chair’ and more on the actual client.”

For a while now, platforms have been the thing that underpin advice transactions and provide reporting at client and firm level. Yet over recent years there has been talk of the platform being usurped as advisers’ centre of gravity, either by the back-office or a greater degree of integration between different systems.

But Din is a firm believer that platforms will continue to play a pivotal role in advisers’ lives.

“I think the market and the industry is big enough to have various different types of business models. But you can’t argue with the fact that at the end of the day, to actually manage someone’s investments, you do need to execute the investment.

“You need a place where you can see how the investment is performing, where you can draw down on your pension and everything else. That is the platform today. So platforms will not go away. Yet we do see their role in the market as being a lot more connected. That way, you remove the ‘swivel chair’ or bad user experience, both for advisers as well as ultimately for their clients.”

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FNZ was the anchor and evening sponsor of AdviceTech Catwalk, our event showcasing early stage tech aimed at advice professionals.

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