An IFA broker was recently embarrassed when an IFA business they were engaged by had been sold without the broker’s knowledge – after they had approached one of their best-acquiring clients about a potential purchase.
The potential acquirer was disappointed as they had wasted time researching the business and were ready to make an offer.
The debacle was embarrassing for the broker and a disaster for the retiring IFA firm. The acquirer that had been lined up was willing to pay much more and had a far better infrastructure to take the new business forward.
Bringing in additional brokers because people rush in promising to deliver a lot for relatively little seldom works out well.
Worse still is going for the cheapest option without due regard for alignment of expertise and interests.
So, to assist any would-be IFA business seller, here are my top tips for selling your business smoothly and for the right price to the right people.
- Engage a specialist consultant/not broker
They will be able to ensure that your business is presented before a broad range of clients who will pay premium prices for any business that will give them an immediate foothold in your region.
2. Ensure you give the consultant exclusivity.
It is essential to the success of any sale. If not, you may find yourself in the same situation as my example above – resulting in a lower price and embarrassment all around.
My experience is that many people have gotten away with styling themselves as brokers or acquisitions/sale specialists simply because there is so much activity in the market.
More often than not, a broker receives commission paid by the acquiring firm. In other words, the broker is acting on behalf of the buyer, not the selling IFA. How can you expect to get a fair deal in such a situation?
You need professional help for what is, after all, one of the most important decisions of your life.
3. Be willing to pay an up-front engagement fee followed by a success fee.
Don’t be afraid of paying a fee: the right consultant will always get the best price from a good company that benefits clients, owners, and acquirers alike.
Think long-term and pay for a value-adding service that will provide exclusivity, even if only for a limited period.
4. Don’t go it alone.
Acquirers will always seek the lowest price, but a good consultant is an experienced and highly successful maker of sophisticated deals.
Remember, if you pay a consultant, they are acting on your behalf. If you pay nothing, no matter what the individual says, they are not working for you.
5. The structure of every deal is as important as the price.
Key questions include: How long must the seller remain with the company? How many shares will they sell initially, and will they retain a majority or minority holding? How will the company be valued? Does the retiring IFA want to exit the business asap, or do they want to stay with the business going forward? Does the vendor want to stay with the new company in a management position or just as a figurehead? Does the retiring IFA wish to retire at all, or are they seeking professional help to understand their options better?
6. Ensure that any non-disclosure agreement has legal ‘teeth’.
There will always be bad actors who illicitly share information. A business for sale can be crippled by knowledge reaching the public domain or getting into the wrong hands; staff and clients can be unsettled, and firm disrupted. It is one of the reasons that owners often are reluctant to put their businesses up for sale.
7. Prepare your shop window
One of the roles of an adviser is to create an excellent ‘shop window’, and it may be that your business requires some ‘beautifying’ before it is ready for sale. Like the property ‘dressers’ that help properties fetch their maximum value, your M&A specialist can be on hand to implement a few judicious touch-ups wherever needed.
8. Make broader improvements wherever possible.
Make sure you also leverage the expertise of a good adviser well in advance of a planned sale. They will assist you in making adjustments that will increase the profitability and therefore increase the value of your business on an EBITDA (earnings before interest, tax, depreciation, and amortisation) basis.
It should be remembered that any owner will always look more professional by using a consultant to sell their business. It creates a very positive impression on potential acquirers. It shows that you are a serious player – rather than someone prone to unwise penny-pinching – which can only make your business look even more attractive.
9. Direct approach from an acquirer.
Finally, if an acquirer comes to you directly, do not be tempted to allow them to cut the intermediary out. The likely results will be a lower price, a less-than-ideal purchaser, and the wrong infrastructure in the future for your clients.
