The scale of financial planning and due diligence involved during an exit or merger means that critical steps are often neglected to detrimental effect, according to AJ Chambers, a specialist in accountancy practice mergers and acquisitions (M&A).
“M&A preparation is a lot of work for all involved, and there are often important considerations that can be forgotten or left until it’s too late,” say James Gosling, the firm’s head of mergers & acquisitions.
“This can have a detrimental impact on the position for both the business and exiting partners.”
Gosling says that it helps clients to overcome this by employing a “consultative approach”, allowing it to understand the inner-workings and culture of each business.
“When a client first engages with us and embarks on the M&A process, we like to do a deep dive on their business. We need to know their client profile, staff base and client fees among other information.”
The importance of this approach is echoed by Christopher Wall, head of professional connections at Trowlock Wealth Management, one of AJ Chambers’ partner firms.
Wall argues that a full audit of the client’s existing financial arrangements is needed in the pre-sale phase to ensure a smooth transition into the post-sale phase.
“The earlier in the sales process we are involved, the better, as time is needed to fully understand personal circumstances and objectives.”
Wall goes on to explain that a number of personal planning opportunities (such as statutory allowances, reliefs and exemptions) and corporate planning considerations (such as assigning shares to family members or into trusts) must be taken into account.
But for Affinity Group, another of AJ Chambers’ partner firms, the financial risk associated with the new entity is an often-overlooked factor in the sale or merger of a business.
“A conversation needs to be had regarding shareholder protection,” says Nathaniel Lee, a senior business consultant at Affinity Group.
“Whilst it is possible to mitigate some risk away through structure and planning, there are other risks that business owners face which can only be protected against with insurance policies.”
“Vital” due diligence
However, looking beyond the business advisory side of the process, Gosling also argues that a legal expert must be engaged to correctly deal with heads of terms, due diligence and final contracts.
“Knowing as much about a company before purchasing can help avoid any nasty surprises further down the line,” says Craig Kelly, commercial solicitor at BTMK.
Kelly gives the examples of the sell-side being involved in litigation, being in debt, or breaching any warranties regarding the company.
He also notes that asset sales, where the buyer purchases only the assets of the businesses, should be carefully monitored.
“Again, due diligence should be carried out on the business and an asset purchase agreement will be produced as part of the transaction. Here, employment law solicitors should be involved to ensure the regulation is followed.”
Echoing this, Gosling goes on to point out that, while the numbers can be addressed and structured in a suitable way, it is the intangibles that are “the most difficult to obtain comfort with”.
For this reason, the firm is particularly diligent in its introductions between accountancy and legal practices, he says.
“Cultures must be aligned, but on a human level you must be able to work and get along with your new partners and directors whether you are exiting after a transition period or intending on being a part of the ‘next chapter’ and journey going forward.”
If you are considering your exit or retirement plans, please get in touch for a confidential and discrete conversation, on 0208 092 6220 or james.gosling@aj-chambers.com
Additionally, if you would like to discuss any of the topics covered within this article with the specialists, please contact:
Christopher Wall- Trowlock Wealth Management, 0208 614 4450 or christopher@trowlockwm.co.uk
Nathaniel Lee- Affinity Group, 01702 337 003 or nathaniel@theaffinitygroup.co.uk
Craig Kelly- BTMK, 01268 211984 or craig.kelly@btmk.co.uk.