Arriving at the decision to sell

You’ll probably have worked hard for years to build your business, and there are both emotional and practical factors to consider before you arrive at the decision to sell.

Firstly, you need to be sure that this is the right thing for you. We suggest to all sellers that they start by examining their motivations. Whether it be for health reasons, the desire for an easier, less stressful life, the urge to travel, or a natural progression into retirement, you need to be sure that this is the right thing for you and your family and consider how comfortable you’ll be without that daily routine and focus.  On the contrary, you might be looking to develop and build your existing client bank, whilst being able to realise some capital in your business.

Maintaining confidentiality

It is essential for both the buyer and the seller to maintain confidentiality throughout the acquisition process. Often a confidentiality undertaking will be entered into at the outset of negotiations. This protects both parties, you would not want it to be known in the marketplace that your business is for sale, and you probably wouldn’t want your staff to be aware of the transaction either.

Working with agents and acquisition brokers

Some buyers choose to use acquisition brokers to represent them during this process and assist them in finding suitable buyers for their businesses.  Brokers should be equipped to do this and be on hand to arrange as many meetings as might be required.  After all, the acquiring firm will either be your new home as an adviser or the home you choose for your clients, and it is therefore an extremely important decision.

Typically, a broker will charge between 1 and 5% of the deal consideration (plus any VAT that is applicable).  As a seller, it is important to be aware, that some acquisition brokers believe they are justified by charging a fee to both the seller and the buyer.  By analogy, this would be the same as the estate agent charging 4% of the property price to both the buyer and 4% to the seller, for one to sell to the other.  However this dual fee might be couched by the broker, this is clearly not ethical nor standard practise in the IFA market.  Not only is it exploiting the vulnerable seller, there is an obvious conflict of interest here on behalf of the broker.  Ordinarily, as one might expect, the broker’s fee should and usually is paid by the acquiring party only.  Of course, you are also at liberty to approach acquirers directly, should you prefer.

Timing is right

It took you years to build your business and you are not going to sell it overnight.

How quickly and smoothly it goes will depend partly on the willingness of the parties concerned, but you also need to be organised. It pays to gather all of the information and paperwork together right at the start.

The process for acquiring or selling a business is fairly straightforward. In brief, the salient parts are as follows:

  • negotiate and outline deal terms and enter into heads of terms
  • purchaser will carry out legal, financial and compliance due diligence
  • formal acquisition documentation prepared and negotiated
  • FCA change in control consent obtained, if required
  • advisers authorised with the acquiring firm
  • advisers attend induction hosted by their new firm
  • transaction completes
  • client letters distributed
  • novations sent to all providers and tracked on the acquirer’s back office system
  • online access activated as and when novations are processed
  • letters of authority processed and distributed for those providers that do not novate
  • further post induction training arranged by the acquirer and undertaken by the adviser.

Whether you’re planning on staying with your business once it’s sold or leaving all together, the process of selling is essentially the same. Some of the stages listed above, such as the acquirers’ due diligence, FCA applications and FCA change in control process will usually happen at the same time. This will compress the time a little and that’s why you need to have all your paperwork together before you start.

The acquirer should arrange for you to be formally inducted so that you are familiar with their internal processes, whilst ensuring competency and effectively embedding firm culture. This will also be a good opportunity for you to meet key individuals in the acquiring firm and your T&C supervisor with whom you can agree a training & CPD focus for the coming year.  Ordinarily, you would expect an enhanced monitoring & training program to be provided along with tailored T&C support for newly inducted advisers.

The transition from your existing firm to the acquiring firm will not be without its challenges.  Vendors, will find that it takes time to adapt to their new environment and learn all of the new systems and processes that are in place.  Whilst, the acquiring firm cannot eliminate this ‘transitional phase’, experienced acquirers can ensure that there are robust processes and measures in place to make this move as smooth as possible, for both you and your clients.

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