The value an adviser will get for their business in the current environment very much depends on the type of buyer the firm is sold to, according to guests on the latest FTAdviser In Focus podcast.
High interest rates have made debt funded deals expensive and put downward pressure on valuations. This has made the gap between the values being offered by different types of buyers even bigger, said Victoria Hicks, managing director of The Exit Partnership.
She said: "If you want to maximise how much money you can receive from your business, that would be down to the type of buyer that you would ultimately sell to."
Vertically integrated businesses that are mainly interested in onboarding the assets would most likely offer the best value, she said, but not necessarily the best deal for the firm.
"The success of any deal isn't striking the deal, it's not signing on the dotted line. You don't actually know how successful your sale has been until you've had all your money out and you're looking back and you're seeing happy clients, and you're seeing happy staff," she said.
Hicks herself has sold her advice business in 2018 and explained on the podcast why she was not entirely happy with the outcome.
Where things go wrong the most is where the integration is overlooked, she said. "Consumer duty has made acquirers focus on integration much more and consequently changed conversations buyers are having with sellers."
Adviser Kanishk Swarup, founder of Compound Wealth Planning, said there are things firms can do to enhance their value to buyers.
He said: "I see a lot of deals being looked at or happening around me. The biggest thing is that engagement with the client, because if you have got engaged clients who are actively engaging with you as an adviser, who are trusting in you with the advice and recommendations you are making, then that is really valuable for an acquirer."
Not all about money
Most interest in the advice market is still coming from private equity and this is "unfortunate" said Hicks, because the current interest rate environment has made such purchases more expensive, putting downward pressure on valuations.
For small buyers the situation is even worse, she said. That is why smaller firms need to be more creative when it comes to attracting acquisition opportunities.
"We talk about culture before cash... and for that reason a lot of sellers are interested to speak to more regional and local firms where they feel they're going to get that strong cultural alignment.
"Perhaps they can't compete in terms of value but maybe they can compete around the way that they structure the deal and things like that."
A lot of retiring advisers are still seeking an external exit but there is also a lot of talk about internal strategies, said Hicks, something her firm is trying to "bang the drum for".
"Provide yourself with the time to open up more exit options because at the moment we are seeing the majority of firms take the external exit route but I think that tide will shift."
