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Roderic Rennison: How to negotiate the best deal when selling your firm

Important points to consider when evaluating the suitability of a buyer and comparing offers

Much has been written about what buyers are looking for in advice firms, what due diligence is likely to be required and how to prepare for a sale. But much less is said about being on the other side of the coin: how to go about evaluating the suitability of a buyer and compare competing offers where there is more than one interested party.

Here is a suggested methodology and a checklist for when negotiating the sale of a firm.

The methodology

1. Agree what is important to you and your fellow directors/partners
This may sound obvious but I have come across situations where sales have been made on little more than instinct and what “feels right”.

Sales can also sometimes be driven by one of the shareholders, without enough regard to what the others want or need. For example, is it every shareholder’s wish to exit the business after the sale or do some want to carry on? Is remaining independent an important issue, or what about retaining staff and working from the same location?

2. Appoint advisers with relevant experience
The sale of financial intermediaries is a specialist area, so make sure you employ a lawyer with experience.

There can be nuances that only those who have advised on such deals will pick up, such as around undertakings and warranties. You are also likely to need tax advice. Often this will come from your accountant but, on occasion, you may need specialist input. Don’t skimp, as this could have adverse consequences.

Finally, do you need advice on the shape of the deal or in comparing different offers? Again, it’s a specialist area and you should seek help to mitigate the possibility of an unsatisfactory outcome.

3. Don’t assume
It is dangerous to assume the buyer’s objectives are aligned with yours. Seek to understand their strategy and future plans; why they want to buy your firm specifically, and how they will go about integrating it with their own operations.

4. Get the sale and purchase agreement right
If you have specific pre-conditions, they should appear in the sale and purchase agreement. Any verbally agreed aspects – for example, about the timing of the handover of your clients – should also appear.

5. Validate and verify
In gathering information on the buyer and evaluating it, make sure that what you have asked for is confirmed in writing, then shared and discussed with those in your business who need to know. This is best achieved if it is co-ordinated by one person.

The checklist

1. Chemistry
Do you like the people you meet from the buyer?

This is especially important if they are the people you will be working with following a sale.

2. Culture
Do you like, and can you identify with, the culture of the buyer’s firm, and how closely does it align with your own?

3. Clients
Are you confident your clients will fit well within the acquiring firm’s proposition and continue to be serviced as you would wish?

4. Colleagues
Is it clear what will happen to your team and are you satisfied that they are likely to be happy with the outcome of the sale?

5. Comparisons
When you have received more than one offer for your business, have you put in place a robust methodology to compare the terms?

And once you have done so, have you sought external views to ensure you have not missed any important aspects?

6. Consideration
Is the price you are receiving for your firm acceptable and fair?

Also, if it is not wholly in cash – for example, part is payable in shares in the acquiring business – do you understand the factors that may affect the share price and any conditions around selling them?

If there are also assumptions about your clients being migrated to the acquiring firm’s proposition/platform, are they fair and realistic?

7. Continuation
Are you clear about what your future role, if any, will be? Are there any restrictions or obligations placed on you to remain, or when you have departed, specifically around working in financial services?

8. Comprehension
Are you confident you fully understand the initial offer you have been made, and the content of the heads of terms and SPA?

While it is appropriate to seek advice and input from your lawyer and other advisers, it is crucial you understand the content and implications too. Once the SPA is signed, there is no going back.

Roderic Rennison is director of Rennison Consulting


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