So, you are thinking of selling your firm
26th March 2021
The sale of a financial services intermediary business is usually the single largest “capital event” for most owners. There is an old saying: “You don’t get a second chance to make a good first impression”; it is one to bear in mind from the outset. In my experience of working with numerous intermediaries who have been through the sale process, there are certain key actions and decisions that make a successful sale more likely, and at the same time will help achieve the best price and terms.
Consult and reach agreement with your co-owners and family
Unless you are a sole owner, you will need to agree the timing and the terms on which the sale will take place with your fellow shareholders or partners. That may appear obvious but just because you may be the majority shareholder, you cannot assume that they will also want to sell; they may want the option to buy you out, and so it is important that you have their active, and not just tacit, support.
It is also important to reach a common agreement as to what the minimum price you are each prepared to sell the business for is. For example, they may want to remain in the business after any sale. If this is not an option, they may not want or be able to accept the price offered for their minority shares if they cannot achieve financial independence.
You also should consult your spouse/partner; they may have other plans and expectations. You should not make assumptions!
Appoint the advisers that you will need
Just because you already have a firm of auditors and a company solicitor that does not mean that they have the expertise and requisite skills to guide you in relation to a sale. You should satisfy yourself that they can provide the expertise you require, i.e. in the sale of intermediary firms like yours, and if not, you may need to seek out and appoint other advisers.
Review your business proposition and pricing
Any potential acquirer will spend time reviewing your proposition not only to ascertain it is robust but treats clients fairly. They will also want to satisfy themselves that the charges – both initial and ongoing – are realistic and sustainable.
They will also be interested in how you segment and service different client categories.
Ensure the affairs of the business are up to date
Examples include ensuring that all compliance matters are up to date, as well as contracts for employees and especially advisers, and Business Disaster Plans.
It is also important to be able to demonstrate that Investment Committee matters are up to date and that dealings with third party suppliers such as platform providers are also well-documented and managed.
Appoint the advisers that you will need
Just because you already have a firm of auditors and a company solicitor that does not mean that they have the expertise and requisite skills to guide you in relation to a sale. You should satisfy yourself that they can provide the expertise you require, i.e. in the sale of intermediary firms like yours, and if not, you may need to seek out and appoint other advisers.
Ensure that compliance and risk processes are robust and your PII cover is in order
You should be confident that your compliance and risk processes are robust and preferably have been externally reviewed. Certain areas are currently in the spotlight such as Defined Benefit Transfers (DBTs) quite aside from MiFID II and PROD (Product Intervention and Product Governance sourcebook) rules.
Your Professional Indemnity premiums will be affected depending on your activities and claims experience so demonstrating a close working relationship with your PI broker is very important and having historic cover for DBTs is also critical. This is especially relevant in relation to being able to obtain PII run-off for historic advice which is typically a requirement made by acquirers.
In more recent developments, you should also ensure that your Professional Indemnity Insurer is reputable. We have seen a recent transaction fail due to the seller having their PI Policy with an unrated Insurer.
Build and maintain a library of documentation
One very powerful way of demonstrating both the worth of an intermediary firm and management effectiveness, is to be able to supply accurate and detailed documents without delay once it is appropriate to do so. Most due diligence requests can be anticipated, and so systematically building a library of documentation in advance will pay dividends.
Allocate enough resource to complete he sale and agree a single point of contact
Any sale takes time and resource. Few are completed without issues arising that need to be resolved. Therefore, appointing/nominating an individual to be responsible – as well as allocating other resource as required – is important in achieving a sale on the right terms.
Undertake due diligence on the acquirer
Just because the acquirer appears financially robust, does not mean that they are robust! You should take steps to satisfy yourselves that they have the means to make any deferred payments.
Communicate effectively
Once it is appropriate to do so, communicate regularly with all your colleagues in the business and with your clients and be involved in agreeing the content. Having disaffected employees and/ or clients is likely to affect the level of the deferred consideration as both will impact on the financial well-being of the business.
Be clear regarding your acceptable commercial terms and boundaries
It’s important to be clear what your “red lines” are in terms of not only price but also other terms such as deferred consideration and indemnities and to convey those to the acquirer consistently. Having competent professional advisers who can on occasion, either assist you in meetings, or in some instances negotiate for you, is sometimes the difference between a successful transaction and one that fails.
If in doubt, don’t go ahead
Finally, following on from the last point, if you and your fellow directors/partners have doubts, stop, and pause, and consult your advisers before proceeding. It may be embarrassing to withdraw from a deal having developed a good relationship with the would-be acquirer, but that’s not a reason to proceed.
Having shareholders that later regret the sale is likely to affect the deferred element of the sale price and can, and sometimes does, lead to resentment.
This article was originally published on LinkedIn