What's on my mind

Corporate Activity: continuing high level of activity but are the valuations justified?

15th July 2016

Buyers and sellers are now generally more knowledgeable and savvy having witnessed the outcomes of previous intermediary firm acquisitions over the last decade or more. It is not just the immediate transaction itself that needs to be considered but the impact of earn-outs for the seller and the ease of integration for the buyer. Recent events have also demonstrated the importance for sellers of ensuring that deferred payments are fully underwritten and will be paid when due.

Those intermediaries contemplating a sale that involves them staying on need to spend time understanding the implications and the consequences. The day following the sale they will not usually, with some exceptions be in control of their business and therefore they need to be clear that they can work with those who have day- to-day control. A number of intermediaries are a lot better off financially following a sale, but are not any happier if they find themselves working with/for people they do not either like or respect!

The iceberg analogy is one for all parties in a deal to remember; there is often more to be concerned about below the surface than what is immediately visible above it. Failure to carry out detailed and systematic due diligence can lead to lasting detriment for any acquirer. This is becoming all the more important as there is increasing competition amongst acquirers and as a result valuation multiples have risen between 2014 and 2015.

It is also important for any firm contemplating either acquisitions or a sale, to recognise the time it takes to achieve results and the strains that can be imposed on the business if adequate resources are not made available. All too often unsuccessful attempts at acquisitions and sales can and do leave businesses in a weakened position which both erode value and potentially increase risk and instability.

Whilst some, albeit a minority of firms may have a strategic/business plan to help guide the development of their business, are you equally prepared for a possible sale and/or acquisitions? The need for a clearly thought through strategy and the allocation of dedicated resource is therefore paramount.

If you are the owner/principal of a firm, try answering the following questions to see how ready you are for a sale or an acquisition:

If you cannot answer all of these questions you should arguably obtain advice.

You may also like to read a “White Paper” that I wrote for Intelliflo in 2014 entitled: ” Selling your business – Top 10 tips to getting it right” –  that can be found on their website at: www.intelliflo.com/selling-your-business and also one for buyers that was published in the second half of 2015 – “Acquiring an advisory business – getting it right” available at: www.intelliflo.com/aquiring-an-advisory-business

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