Is MBO the way to go for IFAs?

by | Mar 13, 2023

Share this article

Wealth Holdings are specialists focusing on mergers and acquisitions, succession planning and post-deal integration in wealth management and financial services businesses. In their latest article for IFA Magazine, they set out the case why they believe that owners of financial advice businesses should seriously consider the option of an MBO when reviewing their exit and succession strategy options.

In many of the previous articles we have written here in IFA Magazine, we’ve described, in some detail, the importance of finding a ‘good fit’ when acquiring or selling your financial advice or planning business. Also, if you read the press releases that so often accompany an acquisition announcement in the advice sector, it’s clear that the culture and synergy between the parties is usually identified as the rationale behind the agreement. In this article, we worked with Vertus Capital to communicate with you their tried and tested framework for executing MBOs. Vertus Capital have successfully executed multiple MBOs in the last six years. Selling your business to the team who are responsible for the management of it, through an MBO, is an excellent succession opportunity. It guarantees business continuity to the benefit of both clients and staff. It is a process that, when diligently planned, can allow for a fair valuation, without the need to engage in lengthy corporate negotiations. However, it is not always easy or straight forward to arrange and finance an MBO.

Collaborating for success

Here at Wealth Holdings, we are delighted to work with Vertus Capital who have over six years of experience in supporting and funding acquisitions and MBOs.

 
 

Supporting a ‘like-minded’ approach when buying and selling an IFA Practice, Wealth Holdings and Vertus Capital both understand that there is much more to successful deals than just financial metrics like multiples and valuations. Successful succession planning must consider the needs and goals of the owners, clients, and staff of a financial advisory firm. It is the responsibility of an independent financial adviser to ensure a responsible outcome for their clients, but achieving the same for themselves can be a difficult undertaking. Acquiring another business or executing an MBO can be a very rewarding, but also complex and intimidating, processes that require careful planning and consideration. That is why we work together to support our clients through every step of the way.

Two steps to heaven

0In our view, the successful completion of MBOs in the IFA space involves two steps.

Step one in this process is to get the key management individuals to become minority shareholders of the company. This is usually done on commercial terms that slightly favour the successors, in order to encourage their participation.

 
 

This first step can be funded and is one that requires close co-operation with the founder. The right team must demonstrate willingness to behave like owners before considering a purchase of control from the founder.

Such a collaboration allows the founder the opportunity to engage in a mentoring relationship with their successors. The ultimate, successful, exit takes time and requires the founder to train, guide and prepare the management team for the ownership role. This will facilitate a smooth transition period, during which the value of the firm will grow as a result of the additional support and newly aligned interests which evolve along the way. The founder can retain control until they are comfortable that the stage is set for their exit, which happens in step two.

Once the minority management shareholders have demonstrated that they are ready for taking on the control of the business, having grown it to the benefit of all, the founder will then execute step two of the deal. This involves selling the remaining shares to the new owners at a good commercial value. If all has gone according to plan, the business is significantly more profitable now than it was at stage one! This two-step process allows the key management team to slowly build up their shareholding while being eased into their new position of responsibility through a thorough mentorship programme carried out by the founder.

 
 

A myriad of benefits

Simultaneously, the two step MBO process allows the founder to exit on their own terms and also with a timing they are comfortable with. Selling internally also protects the firm’s culture and values, while actively increasing the firm’s value itself. It is something, however, that does not happen overnight; it is a process requiring diligent planning and execution if it is to be successful.

Of course, an MBO is not the right solution for everyone. However, we would argue that it is another opportunity to add to the ever-increasing range of exciting options available to practice principals considering their future. In fact, recent research is showing that acquisitions and MBOs in the IFA space have increased significantly in the last year. To us, this is a clear sign that financial planning is a healthy profession which offers a plethora of options for growth and development of the successful businesses operating within it. We’re doing our very best to support just that – and we are here for you if you’d like to chat through your options when it comes to your own succession/exit planning strategies.

If you are interested in selling or exiting your business, please contact Keith Brown at Wealth Holdings here

About Vertus Capital

Vertus Capital provides independent capital that enables internal deals (management buyouts) and third-party acquisitions of all shapes and sizes in the IFA space. Independent financial planners deliver an invaluable service to their clients: helping those clients to uncover goals, plan their finances and invest in a tax efficient way. They do this with due consideration for risk and desired returns, working alongside them to guide them through periods of volatility and stress. We believe this proposition should be preserved through the business succession process. Our unique approach to deals focusses on simple, fair deals that put client continuity first

Share this article

Related articles

How could Iran’s attack on Israel affect markets?

How could Iran’s attack on Israel affect markets?

Analysis from John Plassard, senior investment specialist at Mirabaud Group, into how Saturday night's attack by Iran on Israel might affect markets particularly with regards to possible further escalation of this increasingly dangerous situation within the Middle...

How secure is Fixed Income in 2024?

How secure is Fixed Income in 2024?

Global fixed income markets have seen significant movements and developments in recent times, influenced by various factors including global economic conditions, policy changes, economic indicators, geopolitical tensions, and market sentiment. With the rise in...

Robeco will launch transition investing strategies

Robeco will launch transition investing strategies

Robeco will launch a range of transition investing strategies across several asset classes in the coming months. To transform global emerging economies to net zero by 2050, an estimated USD 125 trillion is needed. Acknowledging the significance of transition finance,...

Sign up to the IFA Magazine Newsletter

Trending articles

IFA Talk logo

IFA Talk is our flagship podcast, that fits perfectly into your busy life, bringing the latest insight, analysis, news and interviews to you, wherever you are.

IFA Talk Podcast - listen to the latest episode

x