When it comes to selling businesses, over 70% of all transactions fail to increase the acquiring company’s value.
In numerous instances, the seller is dissatisfied with the outcome, too.
Here, I want to look at the main pitfalls sellers should avoid to help their sale be one of the minority that delivers value and satisfaction to both parties.
1. Incomplete data
Data is king and it is vital it is accurate and complete, and presented in a way that attracts buyers.
Would-be acquirers should easily be able to obtain the information they require to make decisions and issue indicative offers.
It is vital any firm looking to sell is able to demonstrate reviews have been carried out for all clients paying a fee for such a service
Any firm owners looking to sell should not embark on the journey until they have assembled that data, and they should be open to obtaining external assistance if it is required.
2. Incomplete advice reviews
Considering the Financial Conduct Authority’s ongoing work into advice reviews, it is vital any firm looking to sell is able to demonstrate reviews have been carried out for all clients paying a fee for such a service, and for there to be a process to disengage from clients where one cannot be provided.
This is now one of the first questions acquirers will ask.
3. Outstanding board and committee actions
All minutes and accompanying actions should be reviewed to ensure there are no outstanding actions. If there are, they should, as far as possible, be closed before the sale process starts.
4. Going it alone
It is vital to have either a firm or person in your corner that possesses in-depth experience in the sale of financial intermediaries.
Ensuring CIP/CRPs are up to date and fit for purpose before a sale is a prerequisite
The likelihood of an unsatisfactory outcome is significantly higher for firms that do not engage experienced professionals in this space, such as M&A consultants and solicitors.
5. Lack of an up-to-date CIP/CRP
Most firms have a centralised investment proposition and often also a centralised retirement proposition. Ensuring they are up to date and fit for purpose before a sale is a prerequisite.
6. Incoherent client charging
If the level of current adviser charges results in some clients being unprofitable, and there is cross subsidy, this should be addressed. If not, the value of the firm in the eyes of acquirers will be diminished.
7. Defective share documentation
Unfortunately, some share transfer documents relating to the previous sale, and also sometimes to the acquisition of shares in a company or partnership, are defective. All transactions should be re-checked before the sale process starts.
8. Out-of-date employment contracts and property lease conditions
A review by acquirers of employment contracts – in particular, those relating to advisers – sometimes confirms the restrictive covenants are either incomplete or are deemed likely to be unenforceable. Conducting a review involving an employment specialist lawyer is time and money well spent before any sale process begins.
What is written about even many years ago can be found by acquirers undertaking due diligence
Likewise, existing property leases should be reviewed – in particular, to check when the next review is taking place and any notifications that need to be made when a sale takes place in case negotiations will need to take place with the landlord.
9. Social media comments and spats
While most of us engage in social media, care should always be exercised where the comments are about the business or about others in the financial services sector. What is written about even many years ago can be found by acquirers undertaking due diligence.
10. Failure to carry out (sufficient) reverse due diligence
It is especially important potential acquirers are fully vetted. Relying on “gut feel” is not a basis on which to proceed. Taking references from others who have sold to the selected buyer is one obvious action, and another is to compare the acquirer’s CIP to the one the vendor has in place.
“No question is a stupid one” is a useful phrase to be guided by. Any question is reasonable when it involves the sale of a business likely to be the largest financial transaction the vendor ever undertakes.
All these potential pitfalls can, with care, diligence and forward planning be either eliminated or, in large/significant measure, mitigated. Doing so will have a positive outcome on the ensuing sale and its successful outcome.
Roderic Rennison is a founder and partner of Catalyst Partners
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