There are many options available to advisory practices, explains David Hesketh, group M&A manager at Perspective Financial Group Ltd
No matter at what stage you are in the life of your business, consideration of an exit strategy should never be far from you mind. This is particularly true given the current financial services landscape and the all-consuming changes and developments that we are currently living through. IFA firms in particular have major questions to ask about where they intend to ‘live’ post-2012 when the new RDR environment kicks in, while mortgage intermediaries may like to consider what the MMR will mean for the industry and their place within it.
The RDR is a major game-changer for all IFA firms and stakeholders and we have already seen many business owners decide that, fundamentally, they are not in a position to move their business through the transition. Now, of course, this doesn’t mean that they are immediately looking to sell-up, nor does it mean that they are paying an army of consultants to move the firm for them instead it may well mean that they look to access the current value of their firm as it stands now, plus factor in future profitability, whilst at the same time teaming up with a partner who can help deliver the transition the firm will need to complete if it is to remain trading post-2012.
The point is that there are many options available at present to advisory practices and the determination of which path to follow will be based on a varied array of factors. In order to help owners get to the place where they might wish to be, there are a number of questions which can be asked and the answers will help them make that choice. Below are a just a few of those questions that should be asked and also the areas they may wish to consider in order to determine the answer:
Firstly, what value is there in your business now and what do you anticipate your financials to be over the next few years? Without a fundamental understanding of the value you have in your business across the board, there is little point beginning the exercise. Conducting such an exercise is therefore vital and will give you a strong foundation to begin any negotiations also having a strong idea about the future growth/profit prospects of the business and being able to outline how the business may meet those ambitions will also be crucial.
Secondly what do you wish to achieve financially and personally? Many owners may think an immediate exit now from the industry will be of most benefit to them, however, in the majority of cases, this will not be true. Accessing the value of your business now should not preclude you from staying on board and captaining the ship over the short-term. Indeed, most consolidator purchasers would actively want this type of arrangement if the business is profitable and provides quality advice, why wouldn’t any purchaser want the same management team to stay in situ in order to help build on these achievements?
What do you want to sell – client bank or complete business? This is a corollary question to the first aspect about judging the value in your business. Some owners believe the client bank is the only part of the business which would be valuable to a potential purchaser, and in some cases, this is true. However, in the vast majority of cases the complete business is far more valuable and it makes sense to sell this rather than just a client bank. Therefore, in conducting the exercise about where value lies in the business, the practice owners should look at all aspects of what makes up that firm, not just the client bank which is only one part of it.
What type of purchaser would best suit your needs? A question we are often asked as a consolidator is: ‘Who are your main competitors?’ The idea behind this question is that we are believed to be actively competing with a variety of other consolidators when we talk to firm owners. This is not the case. Most consolidators have very different propositions and a firm that is in active talks with Perspective is unlikely to be talking to many of the others. The point is that owners need to look very carefully at what a purchaser is offering and what they are able to offer in the future. For example, do purchased companies keep their name, their systems, their personnel, etc or is there more of a homogenized approach? A very small number of owners may not care what happens to their business post-acquisition however -most we speak to not only want to be involved after – and indeed need to be, given our two-year earn out period – but they are also very keen to ensure disruption is kept to a minimum for both staff, themselves and, most importantly, their clients.
These are just a few questions for those considering their exit options to answer there are many more and we should point out that all owners should consider these particularly carefully. There are clearly time constraints, particularly for IFA businesses, however there is no point rushing a process which will probably end up deciding the future of not just one individual, but all others who work for it, and the clients who rely on it. Take the time to get it right and it will be much more likely that a positive outcome can be achieved for all.