Practice M&A: The seller's view
In the third part of a series of M&A articles, two practitioners who recently sold their firms reflect on what it’s like to sell and move on to new challenges. Richard Sergeant of Principle Point investigates.
Have a plan
“I was clear that by the time the kids had left home, I wanted to look at doing something completely different,” said John Hunt, who sold his practice in 2011. “There was never any intention to outstay my welcome, I wasn’t going to be relevant to clients when I was in my mid 60s.”
“We always had a plan,” added Mike Leggett, who sold his practice last year. “But we looked at it again when I was in my mid 50s and the question became how big would the cheque need to be to fill the pension?”
But Leggett noted how local market dynamics played a role too, “Partners in all the local firms were about the same age, which meant we could all be looking to retire at the same time. I wanted to avoid the race.”
What were the available options?
An internal successor was the primary choice for Hunt. “It seemed the obvious thing to do and I certainly thought hard about how it might work. But it was just too difficult – some of it was financial, but mainly it was the amount of time that would still have been needed by me. It was just too long.”
While Leggett added: “We imagined a position where we would be bought as a second office for a larger firm, and that’s exactly what happened.”
Preparing the business for sale
For Leggett this was straightforward. “Intuitively we did some tidying up, but we ran a tight ship and could produce a good account of the business. We got rid of C list people, checked the lease, and were careful not to take the foot off the gas.”
This sentiment was echoed by Hunt: “We tried to minimise overt preparation as we were conscious of not letting staff ask too many questions when we weren’t quite ready to answer them.”
What was looked for in a buyer?
Meeting the financial objective features top of the list, but being able to achieve this involves pragmatically maintaining key relationships.
“We wanted somebody who would buy the practice and keep largely intact,” said Leggett.
“It was hard to contemplate 20 years of hard work being broken up, but actually the risk is if it was I may not get as much as I wanted over the period,” added Hunt.
What about the deal?
Both reached top end market averages, with variations in the percentages and dates, however Leggett was keen to minimise his risk around claw-back:
“Client retention and how the business is run are up to the buyer and out of your hands. A floor guarantees a minimum amount payable to us even if the actual figure should be lower. It’s then in the buyers best interests to make clients stay.”
Client and staff reactions
If staff and clients feature prominently in the thinking of both sellers and buyers, how they react to the news of a sale is important.
“Our staff was quite shocked when we told them. Their first instinct was around job security which we could provide some assurances for,” reflected Hunt. “To their credit, they embraced change and all remained.”
Leggett added, “There were a few tricky clients, and we could have predicted in advance which ones would leave – and they did – but on the whole it was okay.”
How did selling the practice make you feel?
“You really go through the whole spectrum,” said Hunt. “Even though you are instigating things and have clear goals, you can’t help feeling a sense of loss as well as satisfaction. It’s not bad, but I think you need to be aware that it’s going to some impact.”
Leggett concurred: “There’s a range of emotions. I was very motivated during the process, but when it came to telling the staff it was hard, and then it was odd, I cleared my desk and then someone else just came in. But no regrets”
And what about the future?
Although the flexibility to spend your time as you want is an attraction, the desire and need to keep earning is still there.
“I've got a few more years to go yet to be able to draw the pension, so taking a part time FD position has suited me well,” said Hunt, a position echoed by Leggett. And what do his friends think? “Total jealousy. ‘I’d love to do that,’ they say.”
Richard Sergeant is the managing director of Principle Point.