By: AJ Chambers | 7 June, 2022

M&A: Preparing the sale of your legal or accountancy practice

As Accountancy and Legal Practice M&A sale specialists, we understand the importance of planning the succession of your practice. Get yourself ready to prepare the sale of your legal or accountancy practice.


We understand that for exiting or retiring Partners this will be one of the most important decisions of your career. Our consultative and expert approach is what sets us apart from our competitors. We work to ensure we achieve the best M&A sale outcome for the business.


Preparing for an exit or merger is a lot of work for all involved. There are often important considerations that can be forgotten or left until it is too late. This can have a detrimental impact on the position for both the business and exiting Partners. Through our network at AJ Chambers, we partner with several experts in different fields. Adding great value to our clients during the M&A process. This article will provide insight into the importance of these considerations. Why these are worth considering sooner rather than later. Be ready to prepare the sale of your legal or accountancy practice.

When a client first engages with us and embarks on the M&A process, we like to do a deep dive. So we can understand their history, their culture and their service offering. We need to know their client profile, staff base and client fees among other information. This, coupled with their aims and objectives, helps us easily identify a suitable prospective company. To complete the merger or acquisition with. This addresses the main objective of changing the ownership of the company. But it does little to address the immediate and long term impact of the exit on the Partners personally.


Christopher Wall, Head of Professional Connections at Trowlock Wealth Management LLP, provides some commentary on the personal financial preparation ahead of sale:


Trowlock Wealth Management have helped several new and existing clients prepare for the sale their business, which is one of the most significant transactions in most people’s lifetime.

“Our considerable experience of working with clients alongside corporate finance houses and commercial solicitors shows that the earlier in the sales process we are involved the better as time is needed to fully understand personal circumstances and objectives and to conduct a full audit of existing financial arrangements.

Business owners will often spend years neglecting personal financial planning opportunities in favour of the commercial interests of their business. As a result, there will invariably be strategies for consideration to coordinate personal and corporate planning pre-sale to ensure a smooth transition into the post-sale phase.

Personal planning opportunities would explore the availability of statutory allowances, reliefs and exemptions alongside non-contentious tax planning and optimal income replacement. This will identify appropriate tax wrappers in accessing our globally diversified approach to investment management.

Corporate Planning

Corporate planning considerations might include assigning shares to family members. Or into trust as well as ensuring qualification for and maintenance of both Business Asset Disposal Relief. Business Relief (formerly Business Property Relief) alongside opportunities for tax efficient profit extraction and business protection.

Our bespoke offering includes taking clients through an enhanced lifetime cash flow modelling process called ‘Your Number’, which quantifies the level of wealth and financial assets required to make work optional. This provides a key decision-making framework to inform the business sale process and beyond. Knowing the sale value required to meet goals and objectives, including those of family members, is incredibly empowering and connects the business valuation process to long term personal outcomes and legacy provision.

We can work with existing trusted advisors or make referrals from our tried and trusted panel of experts including accountants, tax advisers, solicitors and mortgage specialists”.

I have covered a number of pre-sale considerations above and there will of course be additional advice required post-sale to not only deploy capital proceeds into appropriate investment vehicles but to also ensure ongoing suitability of previously implemented solutions.”

Of course, Christopher has covered pre-sale advice, there would be post-sale advice as well to continue the work- which could include trust planning, VCT & EIS and income replacement investments; this will be covered later in this piece.

From conversations I have with clients – both pre and post-sale, or when acquiring – business protection insurance is usually a consideration that is overlooked. Naturally, most people attend to insurance or do not realise the importance of it until it is too late; when it impacts the business financially. You can mitigate this financial risk ahead of time, covering off risks from various angles within business.


Nathaniel Lee, Senior Business Consultant at Affinity Group, elaborates further on this subject:


Whilst the purchase, M&A sale consideration or merger of a business can be all consuming, an overlooked factor is the financial risk associated with the new, larger entity.

“There are risks and exposures for both the individuals and companies. On the sell side and on the buy side of any merger or acquisition. The merger will mean one of two things. Alongside an increase in the value of the business. Either the shareholder splits remain the same, or the shareholding splits have changed.

Either way a conversation needs to be had regarding shareholder protection. What would you do if one of the shareholders passed away. And the value of their shares had to be paid to their next of kin? How would you retain ownership?

Another key consideration will be the identification and protection of key members of staff. They can be integral to the success of the merger. Who would this include? What would you do without them?

Will there be a lack of cover after leaving a role that provided benefits in kind? Such as group critical illness or executive income protection?

Benefits

It is also likely that the benefits package for each firm prior to the merger will not mirror one another. Is it fair to keep things as they are, or should a new group scheme be arranged?

There are also considerations for the exiting owners who may see an increased IHT liability which needs to be protected against. They may also require advice regarding existing business protection that needs to be converted into personal protection now that the business has been sold.

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.”

The above conversations should be running simultaneously. Alongside the business sale discussions with potential suitors that AJ Chambers would carefully and diligently introduce. For initial exploratory discussions. As a trusted advisor, we are on hand throughout the process, acting as a sounding board. Offering up solutions, and playing a pivotal role in the negotiation. We help with the formation of a potential structure for a deal. Alongside the acquiring parties, which is important, as every Partner will have their own requirements from a deal. We need to ensure a tailored approach is implemented so a fair outcome is achieved.

Once an indicative offer has been presented by the acquirer or dominant party within a merger and is accepted subject to contracts and due diligence. It is paramount to engage a commercial lawyer to guide and advise you through the process. 


Craig Kelly, Commercial Solicitor at BTMK, comments:


The purchasing of a business can be carried out in two ways, either by a share purchase or an asset purchase.

“A share purchase relates to shares purchased in a limited company. If the entire share capital of a company is purchased then the company is taken on ‘warts and all’ this means that the buyer is purchasing the entire entity, which will include all assets, liabilities, and obligations, whether the seller is aware of them or not.

Carrying out due diligence on the company before purchase is vital. Knowing as much about a company before purchasing can help avoid any nasty surprises further down the line. For example, the company may be involved in litigation or could be heavily in debt.

A share purchase agreement is produced, which will provide the details of the transaction. Additionally, the seller will provide warranties about the company that a buyer can rely on. A buyer will be able to sue for a breach of any of these warranties if they are found out not to be true.

Asset sale

For an asset sale, the buyer purchases only the assets of the business from the company that owns them. This is known as cherry picking from the business the best parts and leaving behind the rest. During this process, a buyer only takes what they want from the business and does not take on all responsibilities as in a share purchase. 

Again, due diligence should be carried out on the business and an asset purchase agreement will be produced as part of the transaction.

The transferring of staff is important when an asset sale takes place and the TUPE regulations come into play. During an asset purchase, employment law solicitors should be involved to ensure the regulation is followed.”

The black and white, as well as formal matters, must be addressed as outlined above. Including deal structure and consideration. Often the numbers are points that can be addressed and structured in a way that can work. It is the intangibles that are the most difficult to obtain comfort with. This is why AJ Chambers are very careful in the matching and effecting introductions. Between accountancy and legal practices. Cultures must be aligned, or there is a real sign of intent and want from principals to shift working culture to fit with any merger or acquiring business. In addition to culture, on a human level you must be able to work and get along with your new Partners/Directors. Whether you are exiting after a transition period or intending on being a part of the ‘next chapter’ and journey going forward.

As alluded to above, there is post-sale financial advice which you should seek out and execute.


Christopher Wall, Trowlock Wealth Management, continues his previous discussion on the topic, explaining:

“Our team at Trowlock Wealth Management pride themselves on building long term client relationships with personalised goals based planning at the core. So whilst this may start with a business sale, it certainly does not end there.

As a firm we have been awarded Corporate Chartered status. Clients and referrers alike can therefore be confident they are dealing with one of the UK’s leading firms committed to providing the best possible advice, service and support. Furthermore, St. James’s Place guarantees the suitability of the advice given by Trowlock Wealth Management, a member of the St. James’s Place Partnership, when recommending any of the wealth management products and services available from companies in the group.

As holistic wealth managers we coordinate Investment Planning, Retirement Planning, Protection Planning, Tax Planning, Estate & Legacy Planning. All of which are very important to consider, post a business sale.

Examples of solutions available cover cash management, ISA’s, Unit Trust and Unit Trust Feeders, Discretionary Fund Management, Investment Bonds (both onshore and offshore), Pensions, Business Relief Schemes, Private Banking and specialist FX services to name a few”


Are you considering your exit or retirement plans? If so, please contact James Gosling for a confidential conversation on 0208 092 6220. Or james.gosling@aj-chambers.com


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