A question of due diligence: surely there is no question for advice businesses, says Wealth Holdings

The latest article for IFA Magazine from Wealth Holdings explores the value of a thorough due diligence process in mergers and acquisitions of advice businesses.

The critical importance of due diligence (DD) has been thrust firmly in the spotlight in recent years with numerous stories of poor or little due diligence being undertaken leading to poor outcomes when it comes to firms undertaking mergers, acquisitions or exit planning. The admission by Quilter CEO Paul Feeney in 2020 that they had not spotted Lighthouse’s British Steel pension transfer advice is probably the most high profile example and one that will undoubtedly prove to be very expensive.

Many potential acquirers and indeed sellers consider due diligence a necessary evil in the process of buying a firm or client book,  a time consuming process that delays completion and can feel like  your competence and honesty is being questioned. But instead of a check-box exercise, or an excuse to try and reduce the acquisition price we suggest this process is embraced on both sides and turned into a value-add. Regardless of the size of the transaction it is normally a once in a lifetime process for the seller and brings the potential for risk to the buyer if not done correctly.

Obviously, it’s important for the acquirer to understand exactly what they’re buying and the nature of any liability they will be taking on as part of the purchase. This knowledge and understanding may help to shape the deal in terms of whether a share or asset purchase is completed and could also impose requirements that need to be fulfilled during the earn-out period. There are lots of ways to protect both parties that don’t necessarily hinge on negotiating down the purchase price.

Due diligence should be treated as an open and honest sharing of information – not a blatant opportunity for the buyer to reduce the price. This process sets the tone for your future working relationship – if you have an earn-out period this could be a long time, so treat it as an opportunity to get off to a good start.

It’s as Important to Know What Comes Next as to Know What Happened Before

Due Diligence is not and should not be restricted to the Buyer – the Seller should also conduct their own due diligence on a potential acquirer.

After all, selling your business is not just about securing the best price – it’s about what happens to your clients, your staff, your offices and you after the deal is concluded.

Do your homework – speak to planners and back-office staff who currently work in the acquiring firm and also to other firms who have been acquired if possible. What will life be like post-deal and what will the day to day expectations be.

We recently engaged a new acquirer who has asked us to help them find several new acquisitions. As part of our due diligence we followed our own advice and spent an afternoon with several recently acquired firms and some going through the process. We challenged the proposition and sought their feedback good or bad and were delighted to report back that without exception the feedback was positive, it did what it said on the tin. Take the time to invest in a visit or to make a few phone calls as our colleagues are rarely shy of providing feedback.

Avoid Unexpected Shocks

Due diligence is the start of a long term relationship between many parties – the principals, planners and back-office staff, not to mention the clients.

Whilst not everyone will need to know the details of the commercial aspects of the deal it is important to remember to bring everyone on the journey. Involving them early on will make for a smoother transition in the long run and avoid Chinese Whispers in the short term. Generally, it’s difficult to keep things from the staff in a small to medium-sized firm and most will immediately think the worst – so share what you can when you can to keep conjecture to a minimum. After all, losing key staff at this point in time will be detrimental to both buyer and seller.

Transition Plan

Due diligence is the key component to the transition plan, the details are the Sale and Purchase Agreement (SPA) or Asset Purchase Agreement (APA) that determine the working life of both parties over the next few years. It is the detailed discovery in due diligence that will shape any changes required post completion and who will be responsible for them.

Consult an Expert

Due diligence templates are readily available, but it isn’t just knowing what to ask but understanding the answers that’s important. Employment contracts, lease agreement, file reviews and IT integration are just a few areas where you may need additional help. Client fees, investment proposition and service levels all need to be identified and agreed as these form the cultural alignment that is so important in finding a suitable match that goes way beyond the purchase price and payment schedule. A detailed understanding of these requirements may not result in the most riveting conversation, but by understanding the importance of this work we believe we are better placed to ensure the final outcome is successful for all parties.

In addition, a templated approach might not be appropriate depending on the type of deal – asset purchase, share purchase, joint venture, AR – all have different pros and cons and may need a more tailored approach.


In summary, know what you’re buying, protect both parties, bring everyone on the journey by being as open as possible, do your research and consult the experts.

There is an old adage ‘do it well, and do it once’. It is worth taking time over your due diligence as it’s an important element in finding the right partner.

If you would like any further information or assistance with your due diligence requirements then Wealth Holdings would be pleased to hear from you.

Click here for more information about Wealth Holdings  

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