Advisers aiming to grow their firms through acquisition of other firms could be losing out on value by failing to take account of basic checks and balances, Roderic Rennison of Rennison Consulting has warned.

Speaking at fund manager Thesis Asset Management’s recent adviser conference, Mr Rennison said that up to 70% of acquisitions failed to provide true value for the buyer. His comments come against a backdrop of a flurry of recent mergers and acquisitions which is appearing to gather pace.

The problem, according to Roderic Rennison, has become so pervasive that he has set out a list of dos and don’ts for prospective buyers based on his experiences in the industry.

These include basic financial ‘hygiene’ checks, such as ensuring there is access to external advice where needed, avoiding taking short-cuts, making sure there is enough resource allocated and not being afraid to break off discussions and walk away if the deal criteria cannot be met.

Additionally, he recommended that would-be purchasers carefully consider the following:
• Do carefully consider why a sale is the right solution; could, for example, a management buy-out be a better route;
• Don’t proceed without first being clear and comfortable regarding the role on offer once the deal is completed;
• Do think about the impact on your family and in particular your spouse/partner if you are not going to remain in the business post-sale;
• If the deal doesn’t feel right/doesn’t meet your criteria, be prepared to walk away; the deal has to work for you, your fellow shareholders, your staff and not least your clients.

Speaking after the conference, he said: “As profit margins at adviser firms come under more and more strain in the wake of RDR, advisers are looking for new ways to grow. Not surprisingly, buying a rival business can seem an attractive option for many, but this route is not without its risks. The truth is that most acquisitions are very complex and should not be entered into lightly.

“These recommendations come from years of experience at the coal-face, where I’ve witnessed first-hand what does and doesn’t work. While this list is not exhaustive, I’m confident that it should arm advisers considering going down this route with the right information and the confidence to make the most effective decisions – ones that will enhance and protect their businesses in the years to come.”