Acquiring an advisory business: The importance of the planning stage

7 June 2021
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Acquiring an advisory business: The importance of the planning stage

7 June 2021

Nick Eatock
Nick Eatock
Chief Executive Officer


Buying another intermediary firm is rarely as straightforward as it may first appear. When a deal is successful, a key reason will be because a lot of hard work has been put in beforehand.

There are some fundamental 'building blocks' to have in place if you are going to make successful acquisitions – let’s explore the most important ones.

Revisit or draft a strategic plan

Making an acquisition is a major event for most intermediaries; it uses up capital, time, and resources and it should form an integrated part of a firm’s strategy. Buying another firm on impulse because it is available can be a high risk decision. Rather, it should fulfil one or more clear business objectives.

If you haven’t already written a strategic plan, then now is the time to do so. It doesn’t need to be and indeed shouldn’t be 'War and Peace', but rather a document that you and your fellow directors/partners can refer to in order to confirm and validate your decisions.

'Strategy' has many definitions, but it generally involves setting goals, determining actions to achieve the goals, and assembling the resources to execute the actions.

Typical headings will include:

  • Vision, mission, values – knowing what the organisation is and what it wants to achieve

  • External market analysis – in particular competition

  • Internal analysis – capability

  • Diagnosis, prognosis, forecast – analysing the business and where it has reached

  • Objectives and gap – identifying the strategic gaps and options to address them

  • Implementation – turning the strategy into actions – one of which may be acquisitions

Ensure that you have board room, employee and stakeholder backing

The resulting plan should be one that not only you and the other owners of the business buy into but it should also be shared with all the people in the business, whether advisers or support staff, and also if applicable, investors and bankers.

Making acquisitions without full 'buy-in' from all parts of your business runs the risk of issues arising at some stage in the process and the value of the transaction being lost.

Retain the right professional advisers

Before embarking on any acquisition you should have the right combination of specialists to help you execute the deal – typically your accountant/auditors, your solicitor if you have one, and, if required, compliance specialists.

A word of caution; it is not always appropriate to assume that your current finance, legal and compliance advisers have the required skills to assist you. You need to validate this by asking what practical experience they have had of acquisitions and integrations – and in the case of accountants and solicitors – also relevant experience of this type of transaction within financial services.

Don’t forget to seek early involvement from your technology provider as they will have built up extensive experience of your business and can provide useful system-generated MI as well as advice on the kind of information, processes and tools to look for within the target business.

Put in place adequate resources

Making an acquisition is time consuming and can often be likened to an iceberg. The stages leading up to completing the purchase are what you can see, but the subsequent integration phase is what lies beneath the surface and is often more time consuming and resource hungry.

You should be clear what resources you need to complete both the initial purchase and the subsequent integration and also be clear who will do the work of existing staff that you assign. Making the assumption that you or your colleagues can take more work on - whilst continuing to do the day job - could have adverse consequences.

An alternative, whether in whole or in part, is to utilise external resource, but the costs need to be factored in especially when calculating payback and at what stage this will be achieved.

Agree the financial and other parameters that you will operate within

Your Strategic Plan should have identified the opportunities for your business to pursue and therefore the type of firm that you want to target. For example, you may want to identify a firm with corporate benefits capability if your firm currently has significant untapped opportunities.

Alternatively, if a target business that otherwise fits your criteria is, say, 50km from your office and its clients are spread over a much wider area, how practical will it be to absorb the business and achieve any planned rationalisation of resources and reduced costs?

Buying another firm because it is available is not sufficient justification in itself, and should be tested against the strategy and in turn the parameters that have been agreed.

Setting financial parameters is of fundamental importance. You should be clear about how much you have available to make acquisitions, the valuation base(s) you want to use (multiple of adviser charges, EBITDA), and the phasing/ timing of payments – i.e. how much you are prepared to pay up front and how much is deferred, over what period and the financial measures during this period.

The temptation to go outside these parameters for a 'really good deal' is an ever present one, and so you should have a robust mechanism in place to evaluate potential acquisitions that are backed up by reasoned financial data not just 'gut feel', valuable though this may be alongside the hard data.