Ask lots of questions, don’t eat the bulls**t.


16 December 2021


Lee Hartley

Full disclosure, I stole the title from the lyrics of a song by the pop/punk band Hey! Hello!….however, I think it frames this missive quite well.

The point I’m trying to make is that right now our sector is in an extremely dynamic state (commonly known as ‘frothy’ in corporate finance vernacular) with huge amounts of M&A activity – but this comes with a lot of related ‘noise’.

Consequently, there are a multitude of wealth management consolidators (or simply businesses like us who grow through structured acquisition) all waving chequebooks around and making lots of promises.

As an owner of a wealth advisory business, it can be difficult to distinguish the quality offering that can fulfil your financial aspirations and wider requirements, from the proposition which might only deliver against some of your objectives.

Within Fairstone we like to say that buying businesses is easy, and I absolutely stand behind that statement. Agreeing on a sale valuation and underlying legal contracts is unbelievably simple if both parties are well aligned.

The far more difficult aspect, and the part that actually generates long-term value for all stakeholders, is making one harmonious and cohesive business out of a series of acquisitions. Trust me, we have been integrating advisory businesses of different types for 10 years so I can speak from experience. Successfully managing the entire lifecycle of absorbing a people-based business is still an extremely complex process. We constantly strive to get better, but it never gets easier.

But if it was easy, I suppose everyone would be doing it.

So….the key to making what is likely to be the biggest decision of your career is to know what questions to ask in order to filter fact from fiction.

Delivery of full acquisition value is the acid test of the credibility of an acquirer and speaks volumes about their strategy – how many times has an acquirer taken a business through all stages of the transaction and have the selling shareholders received all of the expected/contractual value. Ask for case studies, ask to speak to several owners who have been through the entirety of the journey, rather than those who have just received the first or second tranche of consideration.

Next, look for the hallmarks of post-acquisition success – what is the client attrition rate and linked to this, what is the adviser and staff retention rate?

Look beyond the acquisition to see if the businesses being bought are flourishing – what is the level of organic client growth, what is the recurring income growth, how many selling shareholders have stayed with the new parent company and taken on wider roles.

I’m encouraging anyone who is considering the sale of their business to do their due diligence to the same depth that the acquirer inevitably will. Get comfortable that you are entering into a relationship with the right counterparty that has a proven track record and really understands what ‘good’ looks like.

In short – make sure that you are selling for the right price, have surety over the cash pay-out and guarantee that your clients and colleagues are not paying an undue cost.

To this end we have produced a checklist to help you ask the pertinent questions that any credible acquirer would be happy to accommodate. This is a good starting point to get the evidence that you need to ultimately lead towards a balanced and definitive conclusion. If a potential acquirer can’t or won’t provide fully validated responses to these questions then please, think again.

And in summary, referencing my plagiarised title once again, ask lots of questions and don’t accept any stock answers.

In this regard, ensuring that you secure the right deal and future for your business, then a thorough fact find, is vital and really does add immense value.

This is possibly one of the only areas of our profession where past performance really is a clear indicator of future returns!

(For anyone interested in listening to Hey!Hello! the song that incorporates the headline is ‘How I survived the punk wars’ and is written by the fabulously named Ginger Wildheart, of South Shields origin, just like me)

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Lee Hartley

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For further information, please contact:

Lee Hartley