In this week’s blog, we’ll be asking Alex Canham Partner at Herrington Carmichael his top tips for Acquirers covering a recurring theme we see at IFA Acquisitions and that is the difference between a share sale and an asset sale. A topic taken from our recent YouTube video “Top tips when acquiring an IFA Business” which is part of a wider collaborative series with prestigious UK law firm Herrington Carmichael.
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Gary asked Alex “You’ve been involved in multiple acquisitions, and I know you’ve mentioned before, they range from £500,000 purchase price all the way up to £25,000,000. As a Chartered Accountant working in the IFA M&A space you must have a number of top tips now. What would you say they were for acquirers?”
Alex replied “For acquirers I think the top tip has to be to look at the culture of the business you are acquiring. That’s not specifically a legal tip; but I think it’s so important, because when we look at the success rates of transactions, having buyers look at targets that are compatible with their ethos, that is something that you can’t specifically value directly. You can look at the funds under management, recurring revenues, where the funds are invested, the centralized investment proposition and things like that. But, actually having a culture, looking at staff, at what type of client they look after, the demographic, the level of funds under management and charging structure, that is absolutely paramount. Where we see deals tend to fall over, is because when they go through the due diligence phase, things are not aligned. They’ve got a difference of opinion on how to grow the business on that side of things. So, investing that time and looking at your target firms from the beginning, doing that high level engagement and making sure that you’re aligned has to be front and centre for any acquisition strategy.”
“From a legal perspective, I think being clear with sellers what your expectations are around adjustments to the purchase price and in terms of controlfor me, is something that we see probably as the two more contentious points – because when people do heads of terms, sometimes there’s a kind of keenness to move forwards to get through that stage very quickly. So, they don’t deal with difficult issues such as if you don’t hit your numbers, what level of adjustment will the buyer make to your deferred purchase price? What level of control and integration do they want with your business? Will they keep the clients in the same company if their doing a share acquisition, or will they expect to consolidate them into one of the other parts of their business to make efficiencies within the buyers group? And if those questions are not fleshed out at an early stage, we see when you’re getting to the purchase agreement,. Sellers starting to having these conversations by saying, ‘Oh, that’s not what I thought’. So, if you can document that, even high-level when setting that spirit out in the heads of terms, I think actually there’s some value to it.”
Gary added “That would be my experience as well. It’s about being upfront right from the beginning so that everybody knows and there is no surprise culture. That’s really what makes a deal go through well.”
Alex continued “I think for some of the serial acquirers, such as a consolidators, where they are wanting to try and replicate a standardized model of acquisition, being upfront about that early is even more important. This is because that model will not be for everybody, but for them making really broad concessions on one deal and not on the next impacts them for value down the track. So, I think if you’re looking at that type of buyer as a seller, asking them for what their positions are on those things is the right thing to do. This is because they may be less flexible due to the wider business model they’ve got. This compares to another acquirer who can make decisions more freely and flexibly.”
Gary “I do think that the larger consolidators get some bad press sometimes. However, one of the good things is they do have a tried and tested model and that offers a lot of testimonials from previous vendors as well. This is important because if an acquirer wants to be in this market, and to continue acquiring businesses, it helps when they do what they say they’ll do all the way through the process. It’s certainly helpful for us in in knowing what’s happened before, and of course, we’ve been involved with these acquirers for many years we’ve seen it all the way through the process. It’s just doing what you say you going to do right from the very beginning, and then doing it, so that there are no surprises throughout the entire process.”
Alex concluded “I think that’s right with the consolidators who have that established model. It has efficiencies in the process and sellers working with people who have worked with them before breeds greater efficiencies because you can understand at an early stage ‘well, they will not accept this’ or ‘they will require that’ and from a seller side of things as well, you can get ahead of that by anticipating what they’re going to want and providing that so, I think it works both ways.
Hopefully this blog will have showed you benefit that industry experts can bring to the table during an IFA Acquisition. Often, industry experts have years of experience in their profession and can help assist through the entire process. If you want to discuss anything from today’s blog, please contact us for a free, confidential and no pressure chat:
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Herrington Carmichael disclaimer
This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.
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