Your business sale will be unique, but all deals follow a loose structure that you will need to be prepared for well in advance. Gunner & Co.’s Louise Jeffreys has a step-by-step guide to the process of selling your financial advice business or assets.
Selling your business can seem like a daunting journey into the unknown. But although the process is long and can be tricky, many of the fundamentals will be familiar. You’ve probably bought a house before. You made a decision to buy or move, looked at your budget, wrote a list of ‘must haves’ and ‘nice to haves’, engaged a solicitor, surveyor and mortgage broker and went through a process of negotiation first on the property price, then smaller negotiations such as indemnities or agreeing a price for the fridge. Selling your financial advice business will likely be harder than buying a house, but many of the principles are the same.
We’re going to talk you through the process – step by step.
Step 1: Educate yourself in the process of selling a financial advice business well in advance
Congratulations, you’re already educating yourself by reading this article. And the more you can do to understand what lies ahead of you in terms of your tax position, the due diligence process and the ins and outs of commercial negotiation, the better prepared you will be. Keeping abreast of the buying market and the likely value of your company is easy to do – you can book a bespoke market overview appointment with Gunner & Co., for example. Other ideas include signing up for a newsletter or registering for one of our webinars to broaden your knowledge of the key elements of the deal.
Step 2: Plan well ahead and prepare for your business sale
Unlike selling a house, you need to think about selling your business well in advance. We recommend a minimum of two years to ready yourself for the sale, but the earlier the better. If you think you might want to sell your financial planning business in a decade’s time, begin getting your ducks in a row now, rather than putting it off for eight years. Start thinking about your objectives early, and importantly sense checking how close you are to achieving them. For example, if you have a certain value in mind, understanding the gap, and what you need to do to close that gap, are essential to give direction to your period of pre-sale planning. Paying more attention to how you collect and record your business data now could save you a lot of time and hassle later during the due diligence process.
Step 3: Build your business sale dream deal team
Surrounding yourself with expertise as you go into the sale process is vital to getting the best outcome. You will need to engage at least three professionals for consultation and delivery of the deal.
You will need to find a broker who has relationships with key buyers and works on deals regularly. Gunner & Co. has a network of around 150 credible buyers around the country and understands the depth, variety of deals and exit scenarios that are available. Not only that, a great broker will be your key partner in building a deal. They should focus first and foremost on your objectives for a sale, and how the market can deliver against those. Your broker can help you to understand the marketplace and begin to build a credible, serious and realistic plan of action. If you can’t find a relevant buyer with genuine interest in your business, there’s no deal.
A good broker should also be able to connect you with well-suited candidates for your deal team. Later on, they will steer commercial negotiations using their experience and knowledge of the market, pulling the right levers to get you the best deal.
Understanding how tax will affect your deal is critical and a good accountant can steer you towards a deal structure that maximises tax efficiency. Make finding an accountant your first step in the business sale journey after you talk to an M&A broker, ideally at least two years ahead of your goal sale date, to give that expert time to structure your business in line with HMRC rules.
You will need a solicitor to deal with the legal process of selling your business. It’s important that you engage a lawyer with experience in financial services M&A and a good broker such as Gunner & Co. will have a number of credible options to suit your situation. Don’t leave getting a solicitor to the last minute as it can be knotty to unpick details of the deal he or she may have a different view on.
Due diligence professional
Due diligence is a tricky and long process, and many sellers are surprised by how many questions they are expected to answer during this critical stage of the dealmaking process. A good due diligence expert can help you to prepare for and navigate the data collection and presentation for prospective buyers. Our article on preparing for due diligence when selling your financial advice business is a good place to start.
Step 4: Entering active dealmaking in a financial advice business sale
Data and detail
In the final 12 months you should tighten up your data and prepare to head to market. If you have prepared early, you should have an abundance of data and detail – exactly what a buyer will expect. This includes financials, revenue and most importantly client data, demographically segregated and broken down by funds under management (FUM), product and platform. The value of your financial advice business will be based on the previous 12 months’ trading history so this is the time to maximise sales. If appropriate and reasonable, you may even consider increasing client fees.
Your objectives for sale are much like the list you might create if you were buying a house (detached, minimum three bedrooms, two bathrooms, south-facing garden etc). They include essential ‘must-have’ requirements, areas for compromise (‘nice-to-haves’) and dealbreakers. Objectives you may want to think about include whether you will be retiring or staying on, whether your team is to be retained post-sale and any negotiations on commercial property such as offices. You should check your objectives with a broker such as Gunner & Co. and also talk to contemporaries who have sold to establish whether your expectations are realistic.
Approaching the marketplace
Your specialist financial services M&A broker will define an appropriate go-to-market strategy, develop business profiles which show off your best assets and help you shortlist a pool of interested buyers who are relevant and interested in an acquisition. You’re looking for a mutually beneficial position where your expectations and those of a buyer are aligned and satisfactory. We recommend meeting two or three potential suitors, armed with prepared questions (your broker should help you with these). It’s best to ask the same questions to all potential buyers, so you have a direct comparison to help you choose a preferred option. You should not be afraid to ask difficult questions or put a potential buyer on the spot – you need to know all the relevant details at the outset, not find out halfway through negotiations.
Step 5: Qualification: choosing preferred buyers for your business
Once you’ve met a couple of parties and had a few pre-offer meetings and calls, you are into the qualification stage. Often potential buyers will request further information about your business, particularly about your clients and proposition. Then the offers begin. At this stage you are looking to qualify a couple of offers you really like the look of and begin to nail down some of the finer points of the commercial deal and the structure of the sale.
Step 6: Heads of terms: agreeing to a business sale in principle
Think of the heads of terms as an engagement with a preferred buyer. It sets out a period of exclusivity and outlines the key commercial terms and timetable for the deal. It will also set out post-integration actions and obligations, where applicable. Although it’s not a legally binding document, it’s vital to understand and agree with everything being set out and to begin the deal process proper with both sides in total harmony on the fundamentals.
Step 7: Due diligence in a financial advice business sale
You will be inundated with requests for information during due diligence (you can find an outline of what to expect in this piece) and you should be prepared well in advance to answer quickly, thoroughly and honestly. The buyer will be looking for detailed commercial records, corporate due diligence, employee details and financial details primarily but expect no stone to be left unturned. It’s important to remember that due diligence is a two-way street and you should also be using this period to divine the exact shape of your buyer.
If you have a history of Defined Benefit Transfers (DBT), there will typically be an additional stage of due diligence in the form of a third-party review by a compliance house or DBT specialist.
Step 8: Purchase agreement and legal
After all the back and forth of due diligence you will be ready for a purchase agreement. This is a hugely detailed legal document that includes warranties and, for a share deal, indemnities on past advice. No matter how long and detailed it is, you and your solicitor should make sure you are totally clear on the terms and to negotiate on minutiae before signing. Be prepared for the contract to be redrafted multiple times as you and the buyer work to finalise all the fine print.
If you are negotiating a share deal, the buyer will have to make a change of control application to the FCA, a process that can take up to four months. For an asset deal, expect a delay between exchange and completion so you can write your clients’ letters of authority and obtain signatures.
Step 9: Completion
Congratulations. After a long and arduous process you have completed the deal. Once you receive the initial payment your business or assets will transfer to the buyer and the post-contractual obligations kick in. If you’re staying with the business, you will now be working according to the contractual terms. If you’re leaving, the handover begins. All of the agreed integration plans you and the buyer negotiated for onboarding clients, moving technology and any training or cultural integration can now start.
All deals will work along roughly these lines. The process is straightforward, but it is long and the level of detail can be staggering. Surround yourself with experts who can help you navigate the process sensibly and successfully. We’re happy to help you steer your way through.
Louise Jeffreys is managing director of Gunner & Co, an IFA broker with values based on strong relationships built on trust, credibility and value.
Gunner & Co. specialise in IFA sales, IFA business sales, retiring IFAs and IFA client bank sales.