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Downstream Buy Out (DBO)

Fairstone’s Downstream Buy Out (DBO) is a unique acquisition model aimed at the owners of successful IFA practices.

It provides business principals the opportunity to optimise the capital value of their firm while also securing attractive on-going earnings without detriment to their clients, advisers or staff.

For both parties, the model reduces integration risk and minimises disruption after the sale, creating a partnership which is fully aligned with FCA guidelines.

Fairstone’s DBO model turns the acquisition process on its head, enabling firms to fully integrate and align with the business, grow to achieve their aspirational sale value and then sell and stay within the firm.

Fairstone provide the framework for firm principals to sell and then stay with the business and by joining Fairstone you become part of one of the UK’s largest Chartered financial planning firms whilst retaining ownership of client relationships and the direction of your own firm.

The value of an IFA or wealth management firm under the DBO model is derived from an attractive valuation formula of nine times sustainable profits at the point of acquisition, typically after a two-year integration phase. Business owners have a high degree of flexibility over the timescales of the ultimate sale enabling them to optimise their business growth and subsequent sale value.

With an abundance of additional support services, centralised resource and new business opportunities to utilise, you can focus on growing and streamlining your business in preparation for future sale to a secure, stable and proven acquirer.

"Continuing to deliver a first class service to our clients, whilst coping with the challenges of ever increasing regulatory change, is a key priority for us so joining forces with one of the largest Chartered financial planning firms in the UK makes very good sense."

Mike Godfrey, business principal at Cube Financial Planning

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.  

This enables businesses to continue increasing profits, without disruption, during the most critical period, while allowing both parties to get to know one another and align values and cultures. It also allows a seamless transfer for clients and staff at the acquisition stage. 

At Fairstone, we understand that clients are your main priority and we will preserve your legacy and valued client relationships.

We guarantee that:

  • We never increase client fees
  • We never reduce client choice
  • We remain independent which means no shoe-horning of products, funds or platforms

Fairstone provide a robust and comprehensive compliance network and as the regulated entity, we take on the responsibility for reporting to the FCA as well as absorbing PI and regulatory costs at group level, allowing you to focus on what matters most, your clients. 

Firms in the integration phase also have immediate access to Fairstone’s range of proven catalyst services that drive an increase in business performance. Our investment committee will also provide you with market-wide research and on-going fund due diligence. 

People are at the heart of any relationship and throughout this period, Fairstone will continue to invest in you and your staff, providing valuable training and development to enhance skills and qualifications through the Fairstone Academy, supervision and on-going CPD support. 

Growth is a key aspect of the integration period and at Fairstone, we work hard to ensure our proposition gives firms the framework they need to significantly grow their business, without compromising on client service or independence.  

Value creation is based on the stability and growth of a business and by supporting partner firms to grow during the integration phase, the benefits of this approach can be seen in a commercial sense.

Across the entire portfolio of acquired businesses, we are currently seeing 15% out performance figures – with partner firms delivering more revenue, profits and growth than either their own forecasts or those upon which the buy-out agreements are made.  

As part of our commitment to helping our partner firms grow, we offer a range of catalyst services which include:

  • Growth funding
  • Customer acquisition
  • Centralised paraplanning
  • Building/acquiring client banks
  • Recruitment
  • Professional portfolio management on a discretionary basis

Acquisition windows are pre-agreed with the owners of IFA practises when they enter our DBO programme, but business owners have a high degree of flexibility over the timescales of the ultimate sale.  

While we maintain a minimum integration period of two years, this can be extended by firms that want to optimise their business growth and subsequent sale value.  

There is the ability to further increase sale proceeds after the point of acquisition by continuing to enhance business performance. Shareholders also have the option to lengthen their cash pay-out period to benefit from the continued increase in profits. 

Fairstone believe that one of the most valuable assets when looking to grow or acquire a people-based business 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. 

Our DBO model enables you to retain the human capital by ensuring the people involved in an acquired business remain involved post-sale in a significant client-facing capacity.

We also offer the senior roles of Corporate Director and Wealth Director that principals can transition into after completion of the earn-out period. 

You have the option to:

  • Reduce your workload
  • Focus on the aspects of the business that interest you
  • Continue to earn an attractive income, supplementing your capital payments

As a result of this approach, we have a 100% role retention, 99% adviser retention and 100% principal retention across all of the firms we have acquired to date.