Fairstone publish full earn-out data and reveal an average of 111% across entire portfolio of acquisitions

Firms joining the Fairstone Downstream Buy Out (DBO) programme are exceeding their target sale values and receiving pay-outs far above their original transaction price.

In a first for the sector, Fairstone, one of the UK’s largest Chartered financial planning firms, today publishes earn-out data on all its acquisitions to date.

The data reveals that firms being acquired by Fairstone have surpassed their original sale value, receiving an average of 111% throughout the earn-out process, with one in six acquisitions receiving more than 135% and crucially none receiving less than 100% of their cash consideration.

Highlights of the robust results released by the full-service wealth management house include:

  • Every single acquisition receiving at least 100% of their expected sale value
  • 39% of firms receiving more than 5% excess above their target sale value
  • 22% of firms receiving more than 20% above their original purchase price
  • 17% acquisitions receiving more than 35% above their full sale price
  • Average excess sale proceeds across all acquisitions is 11%
  • Fairstone making total excess consideration payments to date of £5.4m

Fairstone CEO Lee Hartley said: “The ability of a business to secure the entirety of their earn-out payments is a major differentiator in the sector. Some large consolidators are delivering earn-out payments that result in an average of between 80% and 90% of the original headline price negotiated for those acquisitions. Crucially this implies that some companies are getting even less than that.

“At Fairstone, the firms that we have acquired on average receive 111% of their total earn-out value, with some receiving as much as 139% of their expected consideration. Very importantly, none receive less than 100% of their original sale price.

“These figures really set us apart from our peers. We describe ourselves as an acquirer of sustainable growth, not simply a consolidator, and these figures underpin our position as a proven, secure buyer of quality businesses.”

Fairstone attribute their distinctive approach to earn-outs, which includes fundamental differentiators to other acquirers active in the IFA and Wealth Management sector, as being a result of their proprietary acquisition model. This, Fairstone say, is the key to their track record in enabling selling shareholders to optimise their sale value and receive all their capital value in every instance.

At the core of this is Fairstone’s unique Downstream Buy Out (DBO) strategy which integrates ambitious IFA firms into the group, typically over a two-year period, prior to final acquisition.

This model turns the acquisition process on its head, enabling firms to fully integrate and align with the business in the first instance, grow their fee income in order to achieve their aspirational sale value and then complete their sale at a pre-agreed date – all without negatively impacting client service, independence, investment choice or increasing client fees. Importantly, the Fairstone proposition also ensures that all advisers and staff can stay within the firm for the long-term.

Mr Hartley added: “We understand that integration is the foundation of any acquisition and needs to be handled first, whereas many consolidators expect integration to be completed within a relatively short timeframe and conducted after the sale.

“Dealing with integration post-transaction can often lead to significant friction, placing undue burden on both parties and critically creating business disruption during the key early phase of an earn-out.

“Integration isn’t always easy and can involve a lot of change – that is why we deal with this process gradually over a two to three year period ahead of the sale and help our Partner firms to grow profits in the intervening period. This approach also helps to reduce integration risk and at the same time relieve pressure on selling shareholders.

“Importantly, our earn-out structures are based on maintaining a sustainable level of financial performance and nothing else, which means that anyone looking to sell their business is in full control of their earn-out. We simply measure revenue and underlying profitability to validate the earn-out, there are no onerous obligations that sit outside of the sellers’ control or which compromise clients in any way.

“Our DBO deal structure has been specifically designed to enable all sellers to receive full value and also benefit from further growth after the sale has been completed. We provide sufficient runway for firms to continue the growth trajectory that they established during integration, as well as providing a sensible tolerance against the levels of profitability that the initial sale value is based upon. This means that negative fluctuations in new business levels or recurring income do not have a material impact on earn-out payments.

“Overall the strength of our approach is borne out in our data and the outperformance figures we are currently seeing across our entire portfolio of acquired businesses. Our Partner firms are delivering more revenue and growth than either their own forecasts or our buy-out agreements are based upon. In very simple terms, we are buying great businesses and then sharing the upside.”

Leigh Johnson, former principal of Lincolnshire-based Zimb Johnson Bespoke Financial Planning, which was acquired by Fairstone in 2018, added: “There were several reasons I decided to partner with Fairstone. Clearly, I felt it essential that the company to whom I sold my business, conducted themselves with integrity, honesty and in a clear and straightforward manner.

“This was vital to ensure that my clients long term interests would be assured. Equally, as the seller of my business, I was keen to ensure that the sale proceeds I expected to receive, were actually likely to be paid. I was entirely satisfied on both counts.

“I was very pleased indeed to have been able to increase our profitability year on year because it represented a measure of very favourable client response and satisfaction. We received 100% of our sale value, with no fuss and no quibble and there was never any doubt throughout the process that this would happen.”

Headquartered in Newcastle, Fairstone is the number one ranked wealth management firm on Trustpilot* with over 69,000 clients and operates nationally across 42 locations.

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