Interactive Investor finalised its takeover of The Share Centre this week – its third acquisition in three years and an indication of how M&A can rapidly accelerate a company’s growth.

Winning new customers is the biggest challenge for most online investing services and we’ve been looking at how COVID-19 will affect both organic and acquisition-based growth strategies.

Some of the newer companies that were struggling to reach critical mass will now find it harder to secure further funding for their marketing spend. In addition, if consumers have grown more nervous about the stock markets, they may shun the trendy brands in preference for the more conventional and established wealth managers.

Casualties are a certainty, while online services looking for a buyer are likely to find more suiters than in previous years. Interactive’s buying spree and HL’s success with persuading asset managers to hand over investment trust savings schemes have led the way to making acquisition-based growth strategies more fashionable.

But the downturn has had a positive impact on those D2C business models that depend on their customers’ frequent share trading. Trading volumes have boomed and new investors are coming into the market. Existing platforms have benefitted and so has the new group of challenger stockbrokers like Robinhood and Freetrade – which has shot up to 150,000 customers.

Platforms based on customers who typically buy and hold funds have better long-term business model and they have weathered the crisis. Many have paused their marketing activity, but most expect their budgets to be reinstated later this year . They have seen first-time investors signing up as well as new money from existing clients, so they have become increasingly positive about the future. All the same, it’s far from certain whether the worst of the investment storm is now behind us.

Private equity has been dazzled by the potent mix of changing consumer behaviour and the recurring revenues that characterise investment businesses. Because they will look to invest ‘through the cycle’ they will stay on the lookout for opportunities in this hot sector.

D2C continues to present huge potential and we expect to see more M&A because while there are dominant players, none of them are genuine household names. Nonetheless, wise acquirers will remember that after the ink on the takeover documents has dried, winning new customers remains notoriously expensive and tough – but as essential as ever..

We cover direct platforms, digital wealth managers, and the impact of COVID-19 in our latest UK D2C: Market Update reportPlease get in touch for more information.