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Share purchase or asset purchase?

UK regulated firms

Specifically regarding UK regulated firms, there are a number of other factors to be taken into account:

Asset Purchase

  1. With an asset purchase, the buyer will be required to re-engage with every client before the receipt of any income (including recurring platform-based income). There is therefore a greater risk of client loss as well as a temporary, but significant, reduction in income post-completion
  2. With an asset purchase, all historical liabilities remain with the company still owned by the seller. This is particularly important with UK regulated companies as there is still no long-stop arrangement in place and the FCA has been known to require extensive retrospective reviews to be performed.
  3. From a buyer’s perspective, an asset sale generally involves fewer inherent risks and therefore the contract and transaction are more straightforward and less costly.
  4. An asset sale is generally not as tax-efficient for the seller as a share sale, as there are two layers of tax: the selling business is liable for tax on the proceeds, as are the shareholders when in turn they extract the remaining money from the business.
  5. An asset sale may be logistically more complex than a share sale. Sellers will need to ensure that all the different parts of the business are legally transferred including any properties, employees or contracts. This may involve quite a bit of work on their part.
  6. The buyer may ‘cherry-pick’ the assets they wish to acquire. For instance, few buyers are prepared to take on potential liabilities from DB transfer work, in the current market.
  7. Again, with an asset sale the company will still belong to the seller at the end of the transaction and they will need to deal with this properly e.g., by winding the company up (if appropriate) and paying all existing liabilities and debts and disposing of the retained assets before taking the net cash proceeds.

Share Purchase

  1. With a share purchase, the transaction will be scrutinised by the FCA as the buyer will be required to make a Change in Control application before the deal can complete. Among other things they have in recent times become much more concerned about how the purchase is to be funded and, if gearing is involved, the future ability to service any debt involved. This process can significantly delay a transaction e.g., the Tilney / Smith & Williamson merger in 2020 was delayed by several months until a new equity investor was brought in to reduce the debt burden going forward.
  2. It is quite common in share purchase transactions (especially if the seller has historically advised on highrisk items such as film partnerships/DB transfers etc.) for a significant percentage of the price to be retained in an escrow account for several years to ensure that any historic liabilities are paid for by the seller.
  3. Also, with share purchase transactions it is extremely common (almost standard) that payments are made in stages over a number of years. Sellers, however, are liable for capital gains tax on the full proceeds, even if a significant percentage of those proceeds are not received for several years.
  4. A share sale transaction is simpler for the seller than an asset sale as the company is sold as a ‘going concern’ in totality. There is no ongoing requirement for the seller to maintain the contractual and reporting obligations of the business.
  5. The business can carry on as usual after the sale with no disruption to clients, staff or contractual agreements.
  6. In a share purchase agreement, a buyer may apply a discount to the sale price to reflect the increased risk.
  7. The buyer of shares buys a company ‘warts and all’, so will inherit any problems or liabilities – financial, legal or otherwise – that exist at the date of the sale.
  8. If the seller is your company, any warranties or guarantees you give are given, in theory, by your company, not by you personally. However, buyers will often seek to protect themselves by seeking to insert such warranties/ indemnities for the seller within the purchase agreement.
  9. In an asset sale, parts of the business of value to the seller can be retained or could even be sold to a different purchaser at a later date.

About Keith Brown, CEO, Wealth Holdings

Keith is a performance-driven individual and likes to drive change, working collaboratively as part of a team. He is an experienced financial services professional having worked in the sector for over 28 years as a Planner, Business Owner, Managing Director. Keith has held senior management and board positions including Group Training Director, National Operations Director and Head of Business Development for one of the fasted growing independent wealth management companies in the UK. He has worked as part of a team to complete over 50 acquisition and integration projects, and has had strategic responsibility for planning and implementation of integration activity and processes.

Keith has displayed a track record of building and leading teams to achieve agreed targets and budgets. He works with internal and external partners to achieve agreed success through a collaborative approach and pragmatic problem solving, building strong, professional relationships to deliver change management programs and manage complex relationships.

For further information:

If you are interested in learning more about this, or any other aspect of buying or selling an IFA/Wealth Management practice, or if you simply want to better understand what you should do to make your business “market ready” in future, feel free to get in touch with the team at Wealth Holdings for an informal chat.

Wealth Holdings’ Head of Acquisition is Norman MacLeod and he will be happy to oblige or to refer you to a specialist colleague if appropriate. Norman can be contacted via the website, by email or on his mobile – 07851399995.

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