Only when these alternatives have been fully considered should a sale be contemplated.
If a sale is the logical option, then what the current market demonstrates more than ever is the need for in-depth reverse due diligence, for example, where the seller looks under the proverbial bonnet of the buyer and having the right professional advisers in place to reduce the likelihood of a poor outcome.
For example, is there proof of funding in place that the buyer can, and is willing to, provide?
What is the split between equity and debt that the buyer has access to? If 'paper' ie shares in the acquiring firm are being offered, what class of shares are they, when is the projected payout, what is the rate of interest on the loan notes, and what are the early leaver provisions?
The need for professional advisers is also key.
A lawyer that specialises in the sale of financial planning firms and wealth management firms, who has advised on, say, 10 such transactions in the past two years, is likely to be someone to engage rather than a generalist commercial lawyer that has advised on one financial services transaction in this period.
Likewise, an M&A consultant with many years’ experience of the size and type of firm that the transaction involves is more likely to add value than a generalist M&A consultant who arranges deals across a range of sectors.
The present market in relation to consolidation is in a state of flux and change.
There are still attractive deals to be done for quality financial planning firms that are well organised and have prepared carefully for a sale if that is their desired outcome.
What is equally the case is that there has never been a more important time for care and attention to detail and carefully managing to deliver the desired outcomes.
Roderic Rennison is a partner at Catalyst Partners
