A lasting legacy?
Advisers whose main concern is leaving a legacy are unlikely to go down the quick sale route. Instead, they will be seeking a deal structure that allows them to retain some equity, perhaps, as well as see the business continue.
“For many business owners, legacy will be important,” acknowledges Chris Budd, business consultant at The Eternal Business Consultancy.
“That means leaving their business in safe hands to look after the employees and look after the clients – and that can be very difficult to achieve. If you want to prepare your business so your employees carry it on, that’s a totally different type of exit.”
One way of achieving this is through an employee ownership trust (EOT). Mr Budd notes that, rather like the John Lewis Partnership model, the adviser sells their shares to the EOT, which holds the shares for the benefit of the employees.
“What this means is that the business continues, the future profits are used to pay out the owner and then the excess profit goes to the employees. Once the owner is fully paid out, all the profit goes to the employees,” he explains.
“This means that the owner can sell for a fair value – that’s a key point by the way. It’s an independent market valuation.”
This type of exit requires more planning. Although the transaction itself should not take more than a few months, the entire process from the planning stage through to completion will take around two years or more.
Slow and steady
As the business owner, you should also prepare to be paid for that exit over a number of years, rather than receiving a lump sum, which is usually the case with a quick sale.
“That means you’re getting paid from a business you no longer control. Therefore you need to get your business ready,” suggests Mr Budd.
Mr Inglesfield explains that IWP’s model is to acquire larger regional firms and set them up as its local “hubs”.
“These are independent businesses run by the local management team. They sign up to IWP’s business model but they retain full day-to-day management autonomy and their own name,” he says.
“At IWP, we like sellers to retain some equity if they plan to stay in the business over the medium to long term, say five to 10 years,” he says, noting that some acquirers will only consider buying 100 per cent of the firm.
Mr Goldthorpe points out that in selling their business over an extended timescale, advisers could find it a useful stream of income that acts as a supplementary retirement fund during the transition period.
