Acquiring a financial advisory firm or client bank can be a great way to expedite your growth plans.
But it is important to build a process which maps out all of the key milestones in advance, especially if you have not bought before, writes Victoria Hicks, director of The City & Capital Group.
Retaining clients and key members of staff, to derive the full benefit of your purchase, can be difficult.
So take the time initially to untangle the maze of opportunities and structures available.
After all, the true success of any investment is not signing on the dotted line, but looking back after a successful onboarding period, at an engaged client bank and a unified workforce.
Drawing from our own personal experiences as well as market research, this article is to provide you with some ‘food for thought’, whether you are a seasoned acquirer or considering this route for the first time.
Understand your business and the opportunity you present to a vendor
What makes you an attractive proposition?
Do you have successful acquisitions under your belt already?
What does your brand and online presence say about you?
What systems and technologies have you invested in to deliver a great service to clients and improve working life for your staff?
This is a very competitive market, so ensure you stand out for the right reasons.
Primarily it is one of the following motivations that drives a vendor to seek an acquirer.
A) The provision of an exit strategy, or B) the vendor may be struggling under the weight of compliance and regulation.
In either case a vendor needs to satisfy themselves that selling to you or joining forces with you will provide a better outcome for clients and staff.
Set up an ‘acquisitions board’
Surround yourself with a team of trusted advisers who can prove they have specific experience for this type of acquisition.
Your team should consist of an M&A partner, legal representation, a corporate tax adviser and compliance expertise.
Your ‘acquisitions board’ will offer objectivity throughout and will allow you to continue with the day job whilst the process is largely managed on your behalf.
Chart the course
Understand what you are trying to achieve and work out the routes to get there.
Significant time should be taken at outset working in conjunction with your advisers, to map out an acquisitions strategy to yield the best results.
This will identify the type of purchase you should consider.
Is a share or asset purchase more appropriate? Do you wish to acquire staff and/or premises? What locations could you consider? What demographic of client are you targeting? What size of acquisition do you have the resources to manage?
With a structured plan in place, your approach to the market becomes more targeted, saving you time and cost (and headache) in the long run.
Acquainting yourself with the FCA processes for change in control is also advised early in the process.
Not unlike buying a house
Ensure you have the finance agreed or in place before approaching vendors.
A vendor will carry out due diligence on your financial position.
With a hefty deposit being due on completion in most cases, they will want proof that the funds are readily available.
In almost all cases there will be a significant element of deferred consideration.
What assurances can you provide to the vendor that their payments will be met?
Culture is key
You are very proud of your businesses, your processes, your controls and your client outcomes.
However, we would strongly advise taking the time to understand the existing client journey and the level of advice and support that they have become accustomed to.
This is not to suggest you amend the way you operate, but cultural alignment is key to the success of your investment.
If your output is vastly different to the output of a firm you are considering acquiring, look further than the numbers and decide if your way is going to assist with client and staff retention.
Be quite clear with the vendor about life post acquisition – if there are any concerns about your methods of working, it is key to address these early and walk away if you have to.
Do a thorough MOT
Know your position regarding high-risk business, and don’t see all firms carrying out advice in these areas as equal.
Pension transfer business is a hot-topic and will remain so, however many firms have offered this advice to the right clients and for all the right reasons.
Your M&A partner can work alongside you and your compliance support to truly understand the risk this type of business poses.
Additionally, legal representation can help to protect you from complaints arising from advice previous through insurances and warranties.
Be clear about the price tag
Value a vendor’s business fairly and accurately.
It is important that once a sale is complete, both sides are suitably happy with the transaction.
Even where you are purchasing a business or client bank as an exit strategy, there is likely to be a period of coworking.
Setting off on the best foot without penny pinching on either side and a feeling of fairness and value is imperative to provide equal motivation for success.
Be clear about your valuation metrics and be able to answer questions.
At present those acquirers we are working with who are close to completion are reviewing the targets that are in place regarding ongoing fee income – making the offer of upside potential taking account of the recent falls in client assets.
Being open to a change in strategy where there is systemic risk present highlights to the vendor that you are not using an opportunity to profit from the current moment in time.
No surprises
Equally, be clear about the due diligence process at outset.
We have complied a list of over one hundred financial and due diligence-related requirements a vendor may be asked to provide, just to cover the ‘desk-top’ due diligence for a share purchase.
We find that communicating with the vendor about the depth in which you are going to be delving, is key to both an enjoyable and time managed process to progress to exchange and completion.
This article was written for International Adviser by Victoria Hicks, director of The City & Capital Group, a consultancy partner for financial and professional services firms looking to grow their business or establish succession plans.
