There has been no let-up in the pace of consolidation within the intermediary sector this year. Hardly a day goes by without the announcement of a deal. It is estimated there are currently more than 80 acquirers looking to buy other firms, so it is no surprise there is such a high level of competition helping drive the attractive valuations reported.
Advisers reading about this activity will be forgiven for thinking it is easy to sell a business. But it is often a lot more challenging than it looks. Let’s start by looking at what constitutes a successful sale:
- Clients continue to feel valued and are well serviced going forward;
- Staff are happy working in the acquirer’s business;
- Shareholders are paid what they expected to receive (with particular reference to the deferred payments) and are happy in what they subsequently do, whether that is within the acquirer’s business or if they have decided to depart.
It should also be noted the acquirer will have its own success criteria, the main one being that the acquisition leads to a lasting increase in the underlying value of the business.
Ten steps to success
I am boringly repetitive in my advice to clients: a successful sale does not happen by chance. It occurs when the owners of the business carefully plan and execute the sale. Here are the 10 areas crucial to get right:
- Think through the personal consequences of a sale. This may sound obvious but it is vital to envisage what you want to do as a result of a sale. Do you want to remain with the business as part of the new owner’s firm? How realistic is that? If you plan to depart, what will you do with your time?
- Think about the impact on clients and colleagues. Your clients are your income and you are likely to be close to some of them. How will they feel and what impact will a sale have on your colleagues?
- Agree what ideal looks like. It is important to be clear – especially if you have fellow directors and partners – what an ideal sale looks like. Are there types of firm and proposition that are more attractive than others or some that are no-go? How do you feel about restricted versus independent, for example?
- Agree negotiation parameters. Do you have price parameters in mind, are they are realistic and do you feel strongly about keeping your staff, your premises and your business name?
- Agree who will lead. Some sales fail because there are too many people involved. The sale process works better if there is an agreed lead person, though it is obviously important for other shareholding directors, partners and some senior managers to be kept informed and involved.
- Agree who will co-ordinate the due diligence. This is an important role; effective co-ordination and supply of accurate and complete due diligence makes a positive difference to both the likelihood of a sale completing and the final price, as well as the warranties and undertakings in the sale and purchase agreement.
- Agree who will help co-ordinate the post-sale integration. The main reason why many sales are deemed unsuccessful is that the integration is either not done well or does not happen at all in some areas. Getting this right can also make a positive difference to the level of the deferred payments. An example is ensuring clients sign new terms of business and agreements.
- Appoint experienced professional advisers. The appointment of professional advisers, especially the solicitor that will act for you in the negotiations, is key. I advocate the use of firms that are familiar with the sale of financial intermediaries, not just those with general corporate experience.
- Participate actively in the future if you are remaining. The completion of the sale process is not the end; rather it is just a chapter in the process. Clients and staff need to be managed and there are likely to be incentives on offer for helping to build the combined business.
- Pace yourself and your colleagues. The sale of a business can be likened to a marathon rather than a sprint. Often it will, for good reason, take longer than first anticipated, and while the sale process is happening, the business still needs to be run day to day.
The ongoing test
A successful sale will stand the test of time. Before you start the process, you might want to talk to someone you know who has already sold their business.
Are they happy or unhappy? Why? What might they have done differently taking a six-month, one-year and a three-year view?
When selling a firm, the effort you put in is directly correlated with the likelihood of success, however you have defined it.
Roderic Rennison is director of Rennison Consulting