What kind of deal are you looking for?

Paul Morrish, corporate director at Succession Wealth, says that for the majority of advisers, selling their business will feel like “giving up something very precious, that you have nurtured and grown and formed many vital relationships through.”

Recently we have seen advisers actively looking to join forces with bigger firms which offer more resources and investment Victoria Hicks, The City and Capital Group

Advisers will have many different reasons for deciding it is the right time to sell. In the past, retirement was typically the trigger for most business owners - but that is not necessarily the case nowadays.

“A few years ago people were largely selling to retire, but recently we have seen advisers actively looking to join forces with bigger firms which offer more resources and investment,” observes Victoria Hicks, acquisitions director at The City and Capital Group.

Rather than focus on deal structure, an adviser owner needs to first think about why they are exiting the business and the outcome they would like to achieve.

David Inglesfield, chief executive of IWP, says he always asks sellers what their personal objectives are, adding: “It’s important to be clear about these to ensure that any deal meets their needs.”

He lists a few questions for advisers to ask themselves:

• how long do you want to continue working for?
• do you have any specific price aspirations?
• how important is continuity in the business post sale?

Need for speed

Simplistically, there are two main types of deal that advisers will have to choose between.

“Remain a part of the business and keep some equity, or opt instead for a quick sale,” explains Simon Goldthorpe, joint executive chairman at the Beaufort Group.

Where time is of the essence, the latter is likely to be the best option. For example, if a business owner falls ill suddenly, forcing them into early retirement, then a quick sale may well be the best and only option for them.

Ms Hicks explains that a quick disposal, sometimes effectively a distressed sale, is usually the last resort when an individual is unable to remain in a business any longer.

“As a result, this is usually an asset sale, rather than a share sale, in order to reduce the length of the due diligence process. But this could have tax implications and you are also likely to receive a much lower purchase price,” she says.

However, a quick sale does not necessarily make it a bad one, according to Mr Morrish.

“If you are well prepared, know what you want, clear on your longer term outcomes, and engage with a proven acquirer, a focussed sale process needn’t take longer than a matter of months,” he says.

Mr Inglesfield adds: “I’d also suggest that a seller wanting a quick sale considers appointing a lawyer experienced in the sector. There are a number of specialist law firms we see frequently acting for sellers, and they tend to be very familiar with the idiosyncrasies of the sector.”

A lasting legacy?

Advisers whose main concern is leaving a legacy are unlikely to go down the quick sale route. Instead, they will be seeking a deal structure that allows them to retain some equity, perhaps, as well as see the business continue.

“For many business owners, legacy will be important,” acknowledges Chris Budd, business consultant at The Eternal Business Consultancy.

“That means leaving their business in safe hands to look after the employees and look after the clients – and that can be very difficult to achieve. If you want to prepare your business so your employees carry it on, that’s a totally different type of exit.”

One way of achieving this is through an employee ownership trust (EOT). Mr Budd notes that, rather like the John Lewis Partnership model, the adviser sells their shares to the EOT, which holds the shares for the benefit of the employees.

For many business owners, legacy will be important Chris Budd, The Eternal Business Consultancy

“What this means is that the business continues, the future profits are used to pay out the owner and then the excess profit goes to the employees. Once the owner is fully paid out, all the profit goes to the employees,” he explains.

“This means that the owner can sell for a fair value – that’s a key point by the way. It’s an independent market valuation.”

This type of exit requires more planning. Although the transaction itself should not take more than a few months, the entire process from the planning stage through to completion will take around two years or more.

Slow and steady

As the business owner, you should also prepare to be paid for that exit over a number of years, rather than receiving a lump sum, which is usually the case with a quick sale.

“That means you’re getting paid from a business you no longer control. Therefore you need to get your business ready,” suggests Mr Budd.

Mr Inglesfield explains that IWP’s model is to acquire larger regional firms and set them up as its local “hubs”.

“These are independent businesses run by the local management team. They sign up to IWP’s business model but they retain full day-to-day management autonomy and their own name,” he says.

“At IWP, we like sellers to retain some equity if they plan to stay in the business over the medium to long term, say five to 10 years,” he says, noting that some acquirers will only consider buying 100 per cent of the firm.

Mr Goldthorpe points out that in selling their business over an extended timescale, advisers could find it a useful stream of income that acts as a supplementary retirement fund during the transition period.

Ellie Duncan is a freelance journalist