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Chartered Financial Partners’ acquisition of McGrath Tonner Corporate Services Limited shows how increased regulatory burden is forcing deals in the corporate service sector. The deal, which was completed on 1 Oct., is notable because it saw one small Caymanian corporate services firm buy another. Typically acquisitions in this space involve private-equity firms snapping up large Caymanian-owned corporate service firms. One factor encouraging smaller firms to merge is the increased compliance cost that comes with Cayman’s adherence to international financial standards. “Cayman has worked hard to meet the global regulatory standards, especially coming off the FATF grey list, and we should be proud of that,” said Linburgh Martin, CEO of Chartered Financial Partners. “But the reality is that the regulatory burden has increased significantly. It’s not just the cost – it’s the amount of time that now has to be spent on compliance.” Those costs are easier to bear with economies of scale. “For a smaller firm, that time commitment can really detract from your ability to go out and develop new business,” said Martin. “Larger firms can afford to have a dedicated compliance person or even a full department, and that frees them up to grow. Smaller firms don’t have that luxury, which is why the landscape has shifted in a way that makes it much harder for them to compete.” Mergers and acquisitions splurge Compliance isn’t the only factor driving consolidation. Back in 2020, the Compass reported that digitalisation would also force mergers and acquisitions (M&A) in the sector. Indeed, this latest deal follows a spate of M&A activity in Cayman’s corporate services sector, much of which has been backed by international private equity groups. For example, in July 2023, a private equity fund helped finance the merger between Vistra and Tricor Group. In March 2024, private equity-backed Hawksford bought Paradigm Governance Partners. “Private equity firms like these businesses because they can financial-engineer them quite well,” said Martin. “They provide a very predictable stream of cash flow because most of the fees are fixed, so you know what you’re going to get year in, year out, provided you don’t lose clients. It’s not like asset management, where income goes up and down with the markets. That predictability makes them very attractive to private equity.”
