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IFAs looking to consolidate must make sure they are the real deal

The RDR clock is ticking and firms are feeling the pressure to make a decision about their future. January saw a number of enquiries from owners who have decided on their course but, even with large levels of interest in our proposition, only a handful of firms meet the criteria for purchase.

Practice owners often assume that because they run IFA businesses, they will be an attractive potential purchase. Unfortunately, it is almost impossible to value the goodwill that so many business owners believe is a viable asset.

It is worth restating the tangible points a consolidator looks for in a firm:

  • A track record of profit-ability maintained over the forecast period.
  • A strong management team willing to stick with the firm over the earn-out period and, ideally, beyond.
  • Strong recurring income.
  • A robust compliance record and function.

These may seem like basic key attributes for any business but you may be surprised to learn how many IFAs are not able to demonstrate them all.

That said, we see a healthy number of firms with all the right attributes and, for those that meet the above criteria, there is often a misapp- rehension or misconception about what happens next.

For example, as a business owner, do not expect to get your hands on the cash within a week of introducing yourself to us. Neither should you think that the purchase process will be drawn out over a period of months and months.

Completion of a deal will be different for each purchase and while a deal can go through in as little as seven weeks, a more usual timescale is three to four months.

Initial contact to signing heads of agreement can be completed in two weeks.

The real moment of truth takes place within the due diligence following outline offer and agreement. Essentially, due diligence has three areas:

  • Financial due diligence to review and conclude on the achievability of the forecast profit of the firm.
  • Legal due diligence performed by solicitors to review all legal documentation regarding the business and our acquisition of it.
  • Compliance due diligence, which involves a review of the firm’s adherence to FSA rules and guidance and to identify potential regulatory risks and, importantly, assess the firm’s ability to meet the demands of the RDR. Firm owners should not forget that, regardless of their own personal intentions to perhaps exit the market, this firm will need to run profitably in the new environment.

Following the completion of due diligence and providing it has not thrown up any serious issues, the next move is to issue full legal agreements and then move to completion.

Looking at the process, it all seems too simple to be true but we all know there are often natural delays somewhere along the lines that can put the timeline off. But there is nothing to fear in the process and, given we have completed it 20 times in the last couple of years, we believe we make it as simple as possible for the vendor.

We fully acknowledge the trickiest part of the purchase process is making the decision to seek an acquirer. Getting to that point can take the time, once that has been settled, we aim to make the rest of deal as smooth as possible.

David Hesketh is group M&A manager at Perspective Financial Group


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Thank goodness I’m not looking for a consolidator then. I’d never go to one of them especially not after seeing the mess that several of them make.

  2. Time and again I have had IFAs come to me when the deal has turned sour, all too late in 99% of cases, in most cases they haven’t even consulted a lawyer or bought Paul Lockyer’s “Buy Sell” guide which is available through me.

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