Since the rules introduced following the Retail Distribution Review came into effect almost a decade ago, companies providing financial advice have continued to see the weight of compliance and regulatory oversight increase.
This has been particularly difficult for smaller companies without sufficient economies of scale, driving consolidation.
At the same time, as businesses mature and founders’ priorities change, there has been a need to bring on the next generation within companies into management and ownership. However, funding the exit or reducing the ownership of founders can be difficult for a business without external finance.
The good news is that alongside these changes there has been an increase in market opportunity from factors such as increasing longevity, pension reforms, low interest rates and the rise of financial technology.
That has added to the benefits of consolidation, so that both financial investors and companies looking to grow through acquisition are keen to invest in good businesses, and valuation multiples are at a higher level than has been seen in some time.
We look below at how to plan for a sale or investment process for your business to benefit from the market opportunity, and how to maximise the value you will be able to receive and retain.
People as your biggest asset
Whether it is a sale to another company or investment by a financial investor, it is important to keep in mind that people are generally the most important asset of an advisory business.
Potential investors and purchasers will be keen to seek protection from departures of key members of your team and loss of clients; for example, seeking to link consideration to achieving financial targets and putting in place retention arrangements for key individuals.
Consider succession planning and how to incentivise key people within your business well ahead of any sale, to ensure priorities are aligned and that you can do so in the most efficient way.
Although it is important not to let the 'tax tail wag the dog', tax will inevitably be a key factor in the design of any incentive. The tax considerations are complex. However, as a rule of thumb, the further in advance of any potential sale an appropriate incentive structure can be implemented, the better in terms of the overall tax position.
Your priorities
You may wish to facilitate an exit or partial exit for founders of the business, or perhaps to take your company to the next stage through investment or merging with another company to benefit from synergies and combined resources.
It is important to identify and consider relevant individuals’ different priorities at an early stage as part of the transaction planning. Remember that you are choosing a business partner, which should be thought through carefully to ensure the right fit
Preparing your business
Any investment or sale will involve due diligence being conducted on your business and your giving various warranties about its condition. Consider early whether there are any issues and assess the potential impact on the process with your advisers, for example as a result of particular market concerns such as pension transfer advice.
