The recent market conditions have not suppressed advisers’ appetite for acquisitions, however practice principals should consider four key areas before jumping into a deal, according to an Axa whitepaper.
The report, which addresses the complex issues surrounding the acquisition of a planning practice, outlined how advisers can improve their chances of successfully acquiring a business.
The recurring income stream was a vitally important area for practice principals to consider, Axa head of acquisition and succession Steven Davison said.
“There’s this talk around what multiple did you sell your business for, or what multiple did you pay for it, but that’s not the real issue,” he said.
“The real issue is the recurring revenue – what is the actual underlying income stream there and will it be there after you’ve made the acquisition?”
Compatibility was another important aspect to consider, Davison said.
“Compatibility can mean very different things – it can mean what is the client value proposition and how much does a selling adviser charge for their advice, what sort of advice do they provide and how do they implement that advice?” he said.
“Get those compatibility things wrong and it’s often very difficult to claw back the ground to actually align that after an acquisition.”
Davison said advisers also needed to place greater emphasis on evaluating what the future income streams of the acquisition were.
“Focus on fully analysing what the future income streams are, what are high and low scenarios, what is the potential return they’re going to get for the capital outlay they make,” he said.
The role of the vendor and the transfer of trust was another key element to consider when taking over the outgoing adviser’s business, Davison said.
“Financial advice is a trust-based relationship and you need to transfer that trust. Often it’s not as easy as just buying a set of clients and assuming you can own that relationship or take over that trust.”
