If you are a regular reader of my articles in Money Marketing, you will know that one aspect of succession that I focus on is “life after the big event” for the owners, be that a sale, management buyout (MBO), setting up an employee ownership trust (EOT), or family succession.
When we first meet the owner(s) of a financial intermediary, we ask them what their plans are. This information is vital to enable us to ensure that we fully consider their aspirations in all the ensuing interactions.
We have a duty to be honest; some plans may not be realistic, and we need to make our clients aware.
For example, where a MBO or an EOT is being considered, these will often not only require the owner(s) to accept that they need to be prepared to receive the consideration over a number of years (perhaps over five to seven years if funding is involved) but they also need to continue to participate in the business in some capacity to help ensure there is a successful outcome.
It is not just the owners of a firm that participate in the event; it is also their spouses/partners and families
If the owner(s) want to depart immediately, a sale is likely to be the most viable option. But even then, there needs to be a proper client handover plan where the owners are also advisers.
In short, there is a need to plan the intended outcome, and to consider possible scenarios rather than just to assume or hope that “everything will be fine”.
It is not just the owners of a firm that participate in the event; it is also their spouses/partners and families. Are they ready for their “other half” to have more time on their hands and do they want to do the same things?
It may sound like a cliché, but we have and do come across situations where spouses and partners have quite different plans, or where after a flurry of exotic overseas holidays and/or cruises, boredom sets in and regrets begin to surface.
In our view, in the case of a sale, an acquirer also has a duty to their shareholders to make reasonable enquiries about the vendor’s plans before committing, rather than simply taking the initial assurances at face value.
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Anecdotally, more than 60% of transactions result in either an outcome that fails to deliver shareholder value for the acquirer, or varying levels of dissatisfaction for the seller. One of the main reasons centres around the vendor(s) plans failing to work out.
So, what can and should be done to increase the likelihood of a successful outcome for both parties? Here is a checklist:
1. Be honest with others and yourself. A good example is where you may be one of several shareholders. If you are ready to arrange the succession of your business, are your fellow shareholders? And have you also discussed and agreed your plans with both them and your respective spouses/partners?
2. Ensure your plans are realistic and accepted by all parties. If, for example, if you want to remain in the business as adviser after a sale, is your preferred working style going to be respected by the acquirer and will you be happy with the level of support that you will receive and your remuneration?
3. Do not make assumptions. Following on from the last point, get written confirmation on any points that matter to you and ensure your solicitor is fully aware. The Sale and Purchase Agreement (SPA) or Asset Purchase Agreement (APA) will record what has been agreed, and anything discussed outside these documents will not be legally binding.
Business succession is rarely easy, but careful planning and execution make a positive difference
4. Seek verification. Where a sale is involved, obtain references from other vendors that have sold their businesses to your preferred acquirer, and make a list of the questions that you want to ask.
5. Obtain external input. You and your fellow directors or partners are unlikely to have sold a financial planning business before, and it is almost certainly the largest financial transaction that you will ever be involved in.
Seeking the right external support before and during the process will be a key success factor, so that the right questions are asked. Retaining professionals who have demonstrable experience in this sector (i.e. who have advised on similar transactions) will also help ensure that there is a greater likelihood of better outcomes.
Business succession is rarely easy, but careful planning and execution make a positive difference. If you have dedicated many years building your business, you owe it yourself, your spouse/partner and your family to make sure that you do not leave the outcome to chance and risk an unsatisfactory outcome (and an ensuing unhappy retirement).
Roderic Rennison is a founding partner of Catalyst Partners
