Time Is Key When It Comes To Building Relationships

Whether it is building a personal or a business relationship, the one thing that plays out time and time again, is that forming relationships over a short amount of time is fatally flawed.

So often business relationships that are rushed into, face the greatest risk of failure.

Despite this, many M&A deals within the financial sector fail to factor in time within the integration process, leaving too much of the vital relationship building to the post-acquisition phase.

Fairstone, one of the UK’s largest Chartered financial planning firms, operate a market-leading acquisition strategy that turns this process on its head - enabling firms to fully integrate and align with the business before final acquisition.

Fairstone Development Director Dennis Reed explains why this unique process can benefit all.

Growth and integration can mean different things to different people; but there are many key indicators to growing a people-based business.

The first and arguably one of the most crucial factors is to create time.

Time enables a business to focus on vital value-added tasks without compromising on integrity or watering down core values. It also allows businesses to pinpoint growth goals with confidence.

While organic growth is important and will continue to be one of our core drivers, mergers and acquisitions will form part of any business growth strategy that intends to make significant sector impact.

While the M&A process can start and progress in many different ways, generally across the finance sector, the trend is to acquire first and then deal with integration later.

However, this process is flawed on many levels and leads to too much work being done on the wrong side of the fence. It also often leads to aggressive integrations, placing undue burden on both parties through adding unnecessary complexities and business disruption.

Just take cultural compatibility for example. Deal value and long-term acquisition success comes from complete integration and in order to preserve the integrity of the business as a whole, it is essential that the acquired company’s culture is completely compatible with that of the buyer.

This all takes time and ensuring a completely shared synergy between companies needs to be factored in early into a well-planned integration process, not something tackled post acquisition.

Fairstone operates a unique model that reverses the traditional buy and build approach. Our Downstream Buyout (DBO) programme enables firms to fully integrate with the business before full acquisition.

Not only does this strategy ensure both firms are completely aligned in terms of sharing culture and ethos, it also allows a seamless transfer for clients and staff at the acquisition stage.

During the integration phase, which we believe can take an average of two years, it is vital to support partner firms to grow. Value creation is based on the stability and growth of the business and by supporting partner firms to grow during the integration phase, the benefits of this approach can be seen in a commercial sense.

We are currently seeing 15% out performance figures across the entire portfolio of acquired businesses – with partner firms delivering more revenue, profits and growth than either their own forecasts or those upon which the buy-out agreements are made. We like to call this upside to the acquisition value the ‘Return on Integration’ for the selling shareholders – they get more financial return as a reward for dealing with the hard work at the outset.

Not only does this model allow for full transparency within the partnership – a crucial component of any successful long-term relationship – it also helps to reduce integration risk while providing a capital efficient structure with downside protection and the benefits of multiple arbitrage.

So, what does this mean for the sector moving forward and what factors are essential to have in place to help to increase the likelihood of a sustainable and successful relationship.

An important factor when looking to grow or acquire a people-based business, is that one of the most valuable assets is the ‘human capital’. This involves building a business model around people – from clients and the service that they receive through to staff and advisers, who should be motivated to deliver their services without compromise.

A sell and stay proposition enables you to retain the human capital by ensuring the people involved in an acquired business remain involved post-sale in a significant capacity, while having the option to reduce workload and focus on aspects of the business they want to. I’m proud to say that we have a 100% role retention, 99% adviser retention and 100% principal retention across all of the firms we have acquired to date.

Without doubt integration is the key to any successful transaction for both parties and dealing with integration at the outset leads to a much smoother, seamless and successful ultimate transaction. It enables businesses to continue increasing profits during the most critical period without disruption, while allowing both parties to get to know one another and align values and cultures.

Of course, this process will also identify relationships that will not work in the long-term, but it is much more beneficial for both parties to identify this before the deal closes.

And for the majority of partnerships that prove to be successful, following this integration process ensures that synergies are established between the two businesses resulting in a combined company that is stronger than either of the individual firms would be standing alone.

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