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We all know that we come under significant stress and anxiety due to death, divorce, unemployment, property sale and purchase. Surprisingly, purchasing and selling a business is also one of the most anxiety-provoking.

Why is the sale of an IFA business so stressful?

  1. Clients have become friends over the years, and advisors want to ensure that clients are cared for in the future. So, there is a genuine emotional involvement in the sale process.
  2. As a result, Retiring IFAs can become fixated upon their irreplaceability and end up seeking a buyer who doesn’t exist. Time wasted.
  3. Retiring IFAs have worked hard growing their business and want to ensure that they get good value for their endeavours.
  4. Sometimes the IFA seller is not quite sure what they want. Do they want to sell and retire, do they want to sell part and continue and carry-on working, do they want to sell and have a senior management role in the new business? Do they want to sell at all?
  5. Before the RDR, there were few large buyers in the market. Today there are a plethora of choices for the IFA vendor. Sometimes it is challenging for an IFA to understand the differences each consolidator offers. Let us look at the main

Consolidator Overview

Consolidators owned by Private equity firms dominate the market.
IFA business owners, by nature, take the long-term view on behalf of clients. Therefore, they can understand that PE companies generally have a five-year window before selling on their stake or bringing the business to the stock market.
This is a real problem for IFAs because they know that their business will change hands with an inevitable future impact upon their clients. Often IFAs remain with the new company after the sale, and the thought of further changes in the future does not sit comfortably.

That said, consolidators do differ significantly.
Some focus upon smaller IFAs, one man/woman band type operations of which there are many. Such a consolidator with a small IFA focus may prove more attractive to a smaller IFA who perhaps feels that the acquirer better understands their needs and the needs of their clients.

Most consolidators, however, focus on buying up significant assets under influence and therefore focus upon larger businesses.

Larger IFA businesses tend to sell on an EBITDA basis rather than traditional multiple valuations. It is not uncommon to be offered up to 9 x EBITDA for such a business, depending upon if the business owners stay with the company and contribute to the growth of the new business. Generally, an indicative offer for a more significant business with staff remaining on board is higher than a small retiring IFA.

Another consolidator option is the ‘deferred buyout’.
In my experience, this can produce the greatest reward for retiring IFAs or IFAs seeking to find a long-term business partner in an ever-complex business sector.

A deferred buy out could pay up to 14 x EBITDA over time.
The downside to this option is time. Payment for the IFA vendor is not made until a future agreed upon date, which often coincides with most of their clients having been transferred to the buyer’s investment platform. It demands a great deal of confidence in the buyer to commit to such a contract, but it can be an excellent option for the retiring IFA.


Don’t go it alone (but also not with a crowd)
There is a reason to engage a third-party consultant for any M&A deal.
Without a specialist advisor fighting your corner, and I mean that in the singular. I often see buyers and sellers of businesses engaging multiple mediators who promise too much and deliver very little. With scant professional reputation at stake, they say anything to try to make a commission.
Suppose you sell at the wrong price to an inappropriate buyer. Trust instead to professionals who have skin in the game.
Find an adviser with integrity and proven experience in significant deals, and you can trust your future to them and them alone.
Unpicking businesses’ prospects and brokering deals are highly involved processes, but a firm can only commit to you as much as you commit to them.

You will agree that there is a great deal of complexity in the IFA sale process, certainly much more than we could write in the confines of this article.
Is it a small wonder that the sale of a business is one of the most significant stress points in one’s lifetime? Don’t go through the process blindfolded but rather, appoint a professional advisor today to see you through and find the best solution to meet your personal needs.

Brian Spence – HSP Consulting