Assessment of advisors’ attitudes towards acquisitions

IFA Magazine, in partnership with Ascot Lloyd, has launched its latest digital survey, asking financial experts for their views on the key factors they consider when deciding whether to pass on their legacy and consider selling their IFA business.

Whatever the reason for wanting to explore a third-party takeover of your consulting firm, it’s bound to be personal. Whether it’s due to impending retirement, a change in business direction, or rising regulatory costs, it’s a more relevant conversation than ever, with more businesses and business owners exploring their options than ever before.

IFA Magazine, in partnership with Ascot Lloyd, asked financial professionals for their honest views on the motivations, concerns and culture surrounding potential takeovers to gain a sense of the mood in the industry. In light of recent significant changes such as Consumer Duty, which have significantly changed the landscape of advice, the findings provide insightful answers to questions that many businesses and business owners may be asking themselves right now.

In just one week, over 100 people responded to the survey. Here are the results!

Motivation matters

It all starts with motivation, which is why we asked respondents “What would most motivate you to sell your business?” (see chart 1). Given that financial services struggles to attract new talent, and many founders entered the industry many years ago, it’s no surprise that 65% say retirement is their primary motivation. That’s followed by a whopping 22% who cite increased regulatory and compliance workload/costs as their main motivation.

We can assume that the increased workload and costs associated with compliance are due to the consumer’s responsibility, but when we asked respondents specifically about this on a scale of 1 to 10, “Can Consumer Duty and Providing Customer Reviews Accelerate Your Business Sales Plans”the average response was 3 out of 10. So, while this is a factor, it certainly isn’t the whole story of compatibility.

Along with motivation, there are doubts and flaws that can regularly plague decision-making. We asked respondents “What aspect of the takeover worries you the most?” with 60% of the responses going to customer journeyclear evidence of the care and attention that many advisors give to their clients. In second place was achieving the right valuation at 20%, significantly lower than the highest answer and a fair answer. When you put so much effort into being successful in a business, especially one that is there to help and support customers, a fair price is a fair ask.

if not now then when

For some important decisions in life, it may never seem like the right time. But what did our respondents think about when to sell their businesses? We asked, “What is the potential timeline for selling your business?” to which only 33% confirmed they were not considering it now, meaning it is on the minds of 67% of those who took part. The most popular time frames were 24+ months (28%) and 12-24 months (18%), meaning that while it may be on their minds, most are not looking for an immediate way out.

We also asked respondents “Have you tried to sell your business before?” to assess how many people may have previously explored the acquisition route. It appears that the incentive to explore the acquisition route may be recent, as 85% of respondents answered no.

Do it yourself or a helping hand

Once the decision has been made to explore the sale of a business, the question arises as to how and what assistance may be needed. We asked respondents “Would you expect to use the services of an independent broker and/or M&A advisor when selling your business, or would you contact the buyers directly?”The responses indicated that the attitude towards seeking professional expertise was positive, with 55% confirming that they would use combination of both resourcesIn second place was using the services of a broker and/or M&A advisor (28%), meaning that direct contact with buyers was the least popular route.

We also wanted to find out how often companies and business owners were contacted about potentially selling their businesses, so we asked them specific questions “How often are you contacted by a buyer/broker about the potential sale of your business?” (see chart 2). The results clearly showed that M&A is being pursued more actively than ever before, with 32% of respondents reporting monthly and 27% reporting weekly. It seems that the market has become a seller’s market and many companies will be seriously considering taking advantage of this opportunity.

Attractive buyers

Buyers may be pleased (or not) to learn that when we asked respondents, “Do you generally have a positive or negative opinion of consolidators?” 66% of participants said they were neutral, 25% said negative, and only 9% said positive. While this suggests that buyers may not be making many friends there, they are not making many enemies either.

So what would make a buyer attractive? We asked this question to our respondents, who ranked the approach to integration as the most important factor (50%), and the structure of the deal as the second most important (41%). Opinion seems to be divided, perhaps between those who prioritize passing on a legacy and those who like to keep their pennies to themselves.

In terms of buyers, we also raised the issue of “How important is it to you that a potential buyer has independent advice to offer?” and the consensus was that it was very important with the consent of 58% of respondents.

Offer

Getting down to specifics, the details of an offer can be crucial to the success of an acquisition. To get a sense of what a good one looks like, we asked respondents “What elements of your company’s sales proposition are most important to you?” (see chart 3). This is not surprising purchase price was the most important factor that 69% considered important, and rightly so, selling something as valuable as your business should bring a fair and appropriate price. The second most popular factor was the degree of change in your business that the buyer requires who received 61% of the votes, and then duration of earnings from 52%.

Knowing how important culture and operations can be to financial services business owners (which has already been confirmed by the responses to this survey), we wanted to ask specifically about these factors. We asked respondents “How important is buyer engagement to maintaining your company’s current operations and culture?” 56% of the people taking part in the survey indicated that this was the case important and 41% confirmed it very importantOnly 3% of respondents felt that operations and culture were not very importantand zero respondents thought that it was doesn’t matter.

Due Diligence Details

Although companies and business owners tend to think big picture rather than delve into the details, due diligence plays a big role in mergers and acquisitions. To get a sense of the prospects for due diligence, we first asked respondents “How prepared is your company for the due diligence/sales process?” The responses indicate that many advisors and business owners may not have the knowledge or time to prepare their business to a position where they are confident it is attractive to buyers, as the average rating on a scale of 1 to 10 was just 3.

Then we asked a specific question “What area of ​​due diligence would be most challenging for you?” where there was a clear consensus that negotiating terms would be the most difficult and would account for 55% of the responses. Confidentiality and preparation of financial statements both came in second with 13% of responses. Due diligence is clearly one of the most time- and labor-intensive parts of the acquisition process, with its own set of unique challenges.

Application

IFA Magazine and Ascot Lloyd would like to thank all respondents who took the time to complete this survey. The results were illuminating in terms of the perspectives of businesses and business owners on the acquisition process, from motivation to due diligence.

We hope this snapshot of industry opinion will help you make such an important and significant decision and help you draw conclusions. Or even give you some confidence in your thoughts and your own perspective on such an exceptionally difficult process.

About the study

The IFA Magazine M&A Digital Survey took place online and was available from Monday 10 June to Monday 17 June. In total, the survey generated 136 responses, of which 106 were fully completed.

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