Merger and acquisition activity in the financial advice space shows no signs of stoppingexternal link, with advice firms a hot prospect for acquirers.

If selling up, perhaps for retirement or simply a fresh start, is your ultimate goal, you must prepare. The good news is that you can do certain things now to ensure the sale goes easily and that you get the best purchase price when the time comes.

A perfect storm

Large advice networks and product providers wanting to achieve greater scale and assets under management have led activity in the market by acquiring smaller firms. Typically, adviser firms looking to be acquired are actively approaching large advisory businesses, with the market said to be in a ‘perfect storm of supply and demand’.

While acquirers are hot on the tail of small advice firms, with intense competition for larger targets, there are certain things they are looking for. You can expect an assessment on how well suited your business is to the acquirer, which will include a good look at:

  • Your overall data quality
  • The level of contact and control you have over your clients
  • Your client segmentation and proposition clarity
  • Your business growth rate.

All of this information can be used to assess the potential your firm has, and perhaps more crucially, the risks associated with acquiring it.

If you’re identified as a promising target, and initial discussions get underway, the focus moves to the offer stage. It’s then that the acquirer more formally and more openly conducts due diligence, including assessing any historic advice liability that might be incurred if the deal completes.

Why your choice of systems and technology matters

Different acquirers have different criteria as to what represents an attractive target. Some are looking for an efficiently run business with strong systems and controls. Others are looking to acquire firms where they can quickly introduce new processes to unlock efficiency and value.

The one that has strategically invested in technology is likely to be the easier and more attractive proposition.

Acquirers need to be clear on their selection criteria and use the available management information to make an indicative offer. This is why your choice of systems and technology matters.

From an easier sale…

Say there are two firms, both wishing to present themselves as attractive purchase options to a large acquirer, equal in all respects other than the quality of data and the underlying technology ecosystem. The one that has strategically invested in technology is likely to be the easier and more attractive proposition.

…to a better purchase price

The quality of an adviser’s technology infrastructure makes it far easier to build a convincing evidence-based business case that will attract suitors. There are six factors acquirers typically look for in an advice business. Five of them can be evidenced by having your technology in order.

The six 'must have' factors acquirers look for:

  • 1 - Financials, including future remuneration from existing business
  • 2 - Segmented customer data
  • 3 - Strong governance and processes
  • 4 - People and company ethos
  • 5 - Sustainability
  • 6 - Reputation

If you’re unable to provide evidence around these critical factors, you’re probably going to lose out to firms that can. Typically, those that can demonstrate better value to an acquirer have a robust and integrated technology infrastructure that makes it easy to interrogate data and produce accurate MI reports.

It also gives the seller a strong hand in sale price negotiations. A firm invested in integrated technology is more likely to realise a better purchase price, helping you make that retirement or fresh start you’ve dreamed of a reality.

So there you have it. A few tips to help you prepare ahead and get the best possible return on the business you’ve grown. For more articles to help you build a better performing advice business, visit our built for better hub

How can we help?

Thinking about selling up or just wanting to get your business in better shape? Contact your Iress account manager for a free review and some recommendations to take you where you want to be.