Supposedly, on average, the sale of a financial planning firm on a share purchase basis, (where a Change in Control authorisation is required from the Financial Conduct Authority,) takes 12 months. An asset sale takes less time as there is no Change in Control requirement, typically taking between six to nine months. Yet averages do not bring out the individual aspects of each transaction.
Catalyst Partners completed four transactions in the last week of June all on a share basis, (a record we are unlikely to repeat in the near future,) yet these transactions could not have been more different. One sale involved a pensions administration business and took nearly 18 months. Another sale was “second time round” and for various reasons took five years from the time we first worked with our client to start the sale process. The third took barely nine months, and the final one, about a year but had involved significant pre-sale preparation over more than a year before that.
There is a crucial point to take from these four transactions and indeed all transactions. We tell our clients from the outset of our appointment, that whilst we will manage the process to achieve the desired outcome in the shortest space of time, they need to not only pace themselves, but also at all times ensure that they continue to run their businesses effectively, not least because the sale may not happen in which case they need to be able to continue to trade and remain compliant for perhaps another 12 months or more whilst we seek alternative acquirers.
We then come to the changing nature of transactions. They are taking longer to complete than they were, say two years ago, for a variety of reasons. One is that acquirers are undertaking more due diligence than before. For some, it is a case of learning the hard way from previous transactions which have exposed shortcomings in their acquisition process, for others it is because of more intrusive requirements from debt funders.
A further reason is that the regulator’s Consumer Duty requirements, especially in relation to annual advice reviews have sent shock waves around the market following the letter to the 20 or so acquirers a number of months ago. There is still a considerable way to go before acquirers, let alone sellers, will have a framework that they can operate in with confidence.
‘No reason to delay’
So where does this leave the owners of firms who, after careful consideration (and we hope also taking advice,) decide that they want to start the sale process, and acquirers who choose to remain in the market?
In our view, there is no reason to delay, but preparation is more important than ever at a number of levels for sellers. Understanding each acquirer’s funding arrangements is key; the availability of finance cannot be taken for granted, and the acquirer’s ability to integrate effectively taking account their Consumer Duty obligations is also an important factor.
Above all having granular data and presenting it effectively, are paramount. That in turn works in reverse. Acquirers want more data than in the past, and most will ask the seller about their Consumer Duty activities as they approach the first anniversary and the report that they will be drafting. Indeed, some acquirers are doing an audit of the annual advice reviews undertaken by the seller before they are prepared to provide an indicative offer.
In summary, we are, as the statistics provided by IMAS and Next Wealth confirm, seeing a slowdown in activity and more care and diligence from all parties. If that results in better outcomes, that may not be a bad thing alongside both sellers and acquirers seeking and obtaining the right level of support to improve outcomes for all concerned.