The financial services industry, hard hit by the global financial crisis, has had to make systemic changes to adapt to a new regulatory framework and consumer demands for greater transparency.
So if you are selling your financial services business, you may face a number of potential challenges. These include the extraordinarily low interest rates that have been in existence for some time, as well as extensive regulatory compliance, and our exit from the European Union.
In this operational environment, it is vital to find suitably qualified and experienced advisors to help you steer your sale and achieve the desired outcome. Obtaining legal and financial advice before preparing documentation - and when assessing buyer offers - will minimise mistakes and ensure a smoother process.
You may also choose to hire a business broker with experience in your industry, to undertake negotiations on your behalf, and allow you to run your business without undue distraction.
So when selling your company, what issues might hinder its sale or potentially reduce the final selling price?
Stringent regulations, brought in since the financial crisis, have created an additional cost burden as companies are forced to comply. The conduct of financial services businesses is closely scrutinised by regulators, who may now be more inclined to favour a consumer’s standpoint, rather than that of a financial organisation.
New and innovative companies represent a significant competitive risk to those already operating in the industry. Advanced technology, including artificial intelligence software, is becoming commonplace, and many firms require a long-term investment plan simply to compete on equal terms with new entrants.
The legacy of the recession has created a general environment of mistrust and suspicion as far as consumers are concerned. This can be challenging to overcome, as financial firms have to manage and mitigate risks on a daily basis.
Financial services companies face an increasing number of cyber security problems that threaten to disrupt operations, and in some cases, endanger their very existence. Effective protection of consumer data is a huge issue that requires strategic thinking and investment in the right software/systems.
The potential for regulatory requirements to change once a Brexit deal is announced causes uncertainty for businesses in financial services. Staffing issues may also emerge for companies with employees from EU member states.
Prospective purchasers obtain information about your business via the sales memorandum (or information memorandum). This document includes details about the company in general – its location, history, and why you are selling.
Also included in the sales memorandum is general financial information, such as a record of the company’s profitability in recent years, details of assets and liabilities, and its IT infrastructure.
It is not advisable at this point to provide a detailed picture of the business’ finances for confidentiality reasons. In fact, many business owners require interested parties to sign a non-disclosure agreement to protect themselves.
When one or two good ‘matches’ appear, you will begin more detailed negotiations to establish what they are looking for, and whether they are able to quickly go further with the sale in financial terms.
If a buyer believes the price is too high, or is concerned about the level of risk they are taking on immediately after the sale, they may request an ‘earn out’ agreement. This involves you working in the business a little longer to ensure a smoother handover, and provide more confidence for the buyer.
These arrangements generally involve the seller being paid a lump sum, and then the remainder in instalments over a period of time, based on business performance.
The final sales agreement will contain detailed terms and conditions as negotiated between you/your broker, and the buyer. If any warranties and indemnities are required, they can result in you having to pay compensation at a later date, should the information you have provided during the sale be inaccurate or misleading.
It is crucial, therefore, for a legal expert to protect your interests by checking all indemnities and warranties to verify how you would be affected.
Selling My Business can provide industry-specific advice for firms in financial services looking for acquirers and investors. We are industry experts with vast practical experience, and will provide the insight and technical knowledge to smooth out this complex process.
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