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All you need to know on selling your advice firm

roderick rennison

The sale of an intermediary business is usually the single largest “capital event” for most owners. The old adage, “You don’t get a second chance to make a good first impression” is one to bear in mind from the outset.

A number of actions and decisions make a successful sale more likely, and at the same time help achieve the best price and terms.

Consult and reach agreement with your co-owners and family

Unless you are a sole owner, you will need to agree the timing and terms on which the sale will take place with your fellow shareholders or partners. Just because you may be the majority shareholder, you cannot assume that they will also want to sell. They may want the option to buy you out, so it is important to have their active, and not just tacit, support. This in turn will affect the price and also the pool of would-be acquirers.

It is important to reach common agreement as to the minimum price you are each prepared to sell the business for. They may want to remain in the business after any sale and if this is not an option they may not want to, or be able to accept the price offered for their minority shares if they cannot achieve financial independence.

You also should consult your spouse/partner; they may have other plans and expectations. It is important not to make assumptions.

Appoint the advisers you will need

Just because you already have a firm of auditors and a company solicitor that does not mean they have the expertise and skills to guide you in relation to a sale. Satisfy yourself that they can provide the expertise you require. If not, you may need to seek out and appoint other advisers.

Review your business proposition and pricing

Any potential acquirer will spend time reviewing your proposition not only to ascertain that it is robust but also that it treats clients fairly. They will want to satisfy themselves that the charges – both initial and ongoing – are realistic and sustainable. They will also be interested in how you have segmented and service different client categories.

Ensure the affairs of the business are up to date

Examples include ensuring that all compliance matters are up to date, as well as contracts for employees – especially advisers, health and safety audits and business disaster plans.

It is also important to demonstrate that investment committee matters are up to date and that dealings with third-party suppliers such as platform providers are also well documented and managed.

Build and maintain a library of documentation

One very powerful way of demonstrating the worth of an intermediary firm and management effectiveness is to supply accurate and detailed documents without delay once it is appropriate to do so. Most due diligence requests can be anticipated, so systematically building a library of documentation in advance will pay dividends.

Allocate sufficient resources to complete the sale and agree a single point of contact

Any sale takes time and resource. Few are completed without issues arising that need to be resolved. Therefore, appointing/nominating an individual to be responsible – as well as allocating other resource as required – is important in achieving a sale on the right terms.

Undertake due diligence on the acquirer

Just because the acquirer appears financially robust, does not mean that they are robust. You should take steps to satisfy yourselves that they have the means to make any deferred payments.

Communicate effectively

Once it is appropriate to do so, communicate regularly with all your colleagues in the business and  with your clients, and be involved in agreeing the content. Having disaffected employees and/or clients is likely to affect the level of the deferred consideration as both will impact on the financial wellbeing of the business.

Be clear regarding you acceptable commercial terms and boundaries

It is important to be clear what your red lines are in, not only in terms of price but also other terms such as deferred consideration and indemnities, and to convey those to the acquirer consistently. Having competent professional advisers who can, on occasion, either assist you in meeting, or in some instances negotiate for you is sometimes the difference between a successful transaction and one that does not succeed.

If in doubt, do not go ahead

Finally, if you and your fellow directors/partners have doubts, stop and consult your advisers before proceeding. It may be embarrassing to withdraw from a deal having developed a good relationship with the would-be acquirer, but that is not a reason to proceed.

Having shareholders that later regret the sale is likely to affect the deferred element of the sale price. It can, and sometimes does, lead to resentment.

So what constitutes a “successful” sale? One where all parties, not just at the point of sale but at the end of any deferred period, all still agree is was worthwhile. Anything less is a compromise.

Roderic Rennison is director of The Ideas Lab



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

  1. If I may Roderic, I would add one other point to your comprehensive and valuable advice:

    In the due diligence process where the vendor is examining the purchaser, it is as well to establish that the ethos, charges and working practices of the purchaser are not too far removed from those of the vendor. I accept that no two firms will be exactly alike, but as close a synergy as possible is advisable if the transfer of all clients is to be successful . After all that is the only asset the business will have. Without the clients there is no value.

  2. Harry, yes spot on – cultural fit

    Ian McIver (Nexus IFA)

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