Mergers and acquisitions  

Covid will lead to 'sharp contrast' in firm sale prices

Covid will lead to 'sharp contrast' in firm sale prices

Advisers must prove they have adapted to the unique challenges of the coronavirus pandemic if they wish to sell their business for the right price next year, a law firm specialising in acquisitions has warned.  

Law firm Stephens Scown LLP said next year could see a "sharp contrast" in the sale prices of IFA firms depending on how successfully they negotiated working issues during lockdown.

Giles Dunning, partner at the firm, said sellers would be assessed on how efficiently IFAs worked from home whilst still meeting regulatory obligations. 

He said: "Some smaller IFAs may be seen as being behind the curve when it comes to IT investment and need to show they are making use of technology solutions. 

"Likewise, a poorly designed website is likely to reflect poorly on the business in the current climate.

"IFAs who have outdated websites and who are failing to communicate using online services will only diminish their value."

Mr Dunning also said advisers who switched to online meetings at an early stage in the coronavirus lockdown will have an advantage when it comes to selling. 

He said: "IFAs must be able to demonstrate their advisory expertise – if not, that invaluable client relationship will be threatened.

"Remaining in regular communication and boosting this where possible is essential, and again, will be a differentiator when it comes to choosing a business to acquire."

Mr Dunning said the remainder of this year was likely to see relatively few deals as IFAs wait for signs of economic recovery before selling and buyers "sit on the fence".

He said: "We have a pipeline of deals, but many owners have concerns about a possible second wave of Covid-19 and want to see if a vaccine will be made available.

"There remains a lack of confidence in the market. However, 2021 should see an improving picture, which will translate into more activity, particularly in the second half."

Earlier this year introducer Gunner & Co also predicted the number of advisers looking to sell their businesses could spike in 2021 in the wake of the coronavirus pandemic. 

Whilst some deals had dropped off this year, Mr Dunning said there were still a number of buyers actively searching for IFA businesses.

This view of the acquisition market has also been evident in SimplyBiz’s recently launched buy-out scheme, Horizon. 

The business, which pairs member businesses looking to sell with those looking to buy, has already seen 100 companies register their interest to sell since the service launched at the beginning of July.

Mr Dunning added: "Buyers may have cash in the bank or have secured private equity funding and are ready to go. There is no doubt that this year the market has become more restrictive, but we may see that easing next year. 

"The focus for IFAs who want to sell is to undertake work now so that due diligence can be minimised, and any potential buyer can see there is a clear strategy in place.