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Paving the Way to a Successful Exit

In previous editions of the Executive Eye Newsletter, we discussed laying the groundwork for selling an IFA business and cultivating the right mindset. This time, we delve deeper into the intricacies of going to market and how to competently manage the sales process.

Paving the Way to Market

Once you’re ready to sell, the next step is to pull together an initial list of prospective firms that align with your criteria.  With over 150 active acquirers in the UK market today, it's crucial to tread carefully, which is why we would advise any seller to engage a skilled adviser or broker to navigate this complex process.

Whilst there are plenty of buyers in the market, the hard part is getting the right buyer for your business These buyers need to be sense checked against the key criteria that the seller has set out. Once a shortlist has been created the seller needs to understand how to approach these potential acquirers as there are ways of doing it correctly that can add value to the seller and ways that can work against them.

Maintaining Confidentiality and Strategy

Confidentiality is the cornerstone of any sales process. Disclosing information indiscriminately can lead to unwanted rumours among clients and staff. We deploy a 'bid basis’ approach, reaching out to an agreed set of acquirers anonymously. This preliminary step serves to gauge interest without revealing the seller’s identity. If there's mutual interest, we proceed with a Non-Disclosure Agreement (NDA) before diving deeper into specifics.

We also set clear expectations and timelines for potential buyers, aiming to secure non-binding indicative offers that are financially viable. We find that this managed approach prevents buyers from manipulating the process to their advantage, offering a level playing field that encourages professionalism.

Initial Meetings

The next stage is simply a series of meetings, initially remotely, to find out more about each other to ensure there is an initial fit. Our job (as the Adviser) is to make sure that the acquirer has all the information they need to put together the indicative offer. If the seller comes off a zoom meeting and really took a dislike to one of the acquiring team, it doesn’t matter how good their offer is, the chances are they won’t do a deal!

During this stage, time management is often a bottle neck.  Whilst we are working to a timescale, the seller must be totally comfortable with the decision they are about to take, so if they need to see some of the firms/people again then that will be arranged.

Diary management of key people is so difficult, and this is the aspect that can add time to the process. However, the more time that is spent getting this part right the easier it will be to complete the deal and the more relaxed the seller will be.  On average, the time from the first zoom call to making a decision can vary from 3-5 months.

If buyers miss the deadlines without notifying us, then we are well within our rights to discount them from the process. If acquirers have a problem with meeting the deadlines and let us know in most cases this can be accommodated. It’s all about open communication.

Reviewing the Offers and Moving Forward

Once we have all the offers, we then work through them and review the meeting notes around thoughts on culture of the firm, client proposition, staff proposition etc. This allows us to shortlist those firms we wish to take forward.

The next stage is more detailed, and this involves Face to Face meetings with all the shortlisted buyers, as both sides naturally want to meet each other and the vendor will want to understand more about their operation, culture, meet other key members of staff, understand what life will be like after a deal, etc.

At this stage we will providing potential acquirers with more information to enable them to produce detailed Heads of Terms (HOTs) which spells out in far greater detail the offer. Our job is to create competitive tension between the firms for the benefit of the vendor, our client.

Due Diligence

Up until HOTs we have been working to the seller’s timescales and have been in full control. During due diligence we must agree on the timescales as there is a massive amount of work to be done and both sides need to work to an agreed plan. In many cases this is run and controlled by the acquirer as they are the ones paying tens, if not hundreds, of thousands to due diligence firms.

We flag a warning with every seller that this is a very, very unenjoyable time of their life. The seller has a business to run, clients to see, staff to manage and now they have four external due diligence firms asking the seller for what appears to be tons of information. This is why we outlined in a previous Executive Eye the importance of ensuring that the Seller, as an individual, is completely mentally prepared for the sale of their business.

The information collated from the Information Request packs issued by the due diligence firms is reviewed, analysed and ultimately translated into the preparation of the Sale and Purchase Agreement (SPA).  The SPA is the main document relating to the sale of the business. Hopefully the due diligence process confirms what the acquirer was told prior to signing the Heads of Terms (HOTs). For example, income will be reconciled against assets, client numbers and AUM will be reviewed on a line-by-line basis, compliance records reviewed, and advice reviewed. This is all reflected in the terms of the SPA.

All parties are a little nervous when entering due diligence and hope that everything will be concluded satisfactorily but obviously sometimes things go wrong.

If something is found that was not declared the seller could find they have to provide warranties and indemnities against the issue or in the worst case, the acquirer may pull out. In today’s climate poor DBT advice/documentation or poor advice is a common issue which would only come out during this process. If we have done our job correctly there should not be any issues as we would have declared everything, warts, and all, but the seller will only know the external view on their DBTs or advice files when they have been reviewed.

Although this is quite strange, due diligence actually works well for both parties, as if the seller during the due diligence process really decides they cannot work with the acquirer or vice versa then it is easier to withdraw at this stage. This can sometimes happen, but if a robust procedure has been followed, this should not be the case. Also remember people will now be spending considerable sums of money on due diligence, legal fees, etc and everyone wants it to work.

The Final Hurdle

Once the SPA has been finalised, there is still a fly in the ointment, which is the requirement of the FCA granting change in control for the deal to happen. Currently it can take anywhere between 2-6 months for this to happen!

As a result, acquirers put in for Change in Control when they are happy the due diligence stage is going well so timelines can run alongside each other. The two terms the seller needs to be aware of are Exchange and Completion and these are the final stages. Ideally the seller would exchange and complete at the same time. What this means is that the seller would sign the SPA (exchange) and regulatory approval had been given by the FCA allowing the seller to then complete at the same time.

In some cases, firms will exchange and then wait for FCA approval to then complete. In our experience, the shorter the timeframe between the two events the better.

The seller then banks their first payment and takes a well-earned rest before going back to work in their new business!

What if it goes wrong?

Once the deal has been done the pressure or problems don’t necessarily stop. We often read in the industry press about deals going wrong, and the business owner complains that they haven’t received the second or third payment.

In our experience, we rarely meet someone who is complaining that they have been hard done by an acquirer. In the majority of cases, we are aware of, it is because not enough care has been spent on understanding each other’s business prior to HOTs and reflecting on every single aspect in the legal contracts. This usually comes down to where individuals are just focused on the price and not the rest of the terms. Plus, they may be pushing for a speedy conclusion and cut corners. Never rush, never scrimp on legals or due diligence. It will cost you.

Finally, don’t try to do it yourself. It’s like meeting a client who has tried to put in place a complex drawdown strategy themselves and the seller now must pick up the pieces. This process is complex and full of potential traps and only if the seller is very, very lucky will the seller be successful. The odds will say the seller will fail and be one of these people the seller read about in the press.

And if anyone is considering such a massive undertaking – enter with your eyes open!


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