November 30, 2021

#272 Christopher Athanassios – Transcript

Share :

LinkedIn
Twitter

Fraser Jack
Welcome back to the xy advisor Podcast. I’m Fraser Jack and today we are talking about buying and selling financial planning businesses. I’m joined by Chris Athanassios. Welcome. Thank you so much for having me on the podcast now, how did I do with pronunciation? Was it alright?

Christopher Athanassios
Very well.

Fraser Jack
Now tell us you’re right. You’re a lawyer, you spend a bit of time working in the space with different businesses. Tell us a little bit about your your day job.

Christopher Athanassios
Sure. So I co founded Miller and Prince. Five, approximately five years ago, with my two business partners, Matthew and George, we came from a big, big law firms. I practice in corporate banking and restructuring and those are my particular industry sector. Practice Areas I should say. In my business partners do a lot of property both commercial and residential. And then in straddle in that practice areas, we have a team of associates or three associates to assist us and apparently going to be a law clerk says there’s eight of us in the in the firm,

Fraser Jack
well, fantastic and location in Sydney CBD CBD,

Christopher Athanassios
we actually just moved offices closer to circle a key so nice spot to be

Fraser Jack
the guy. There’s probably a bit of office space hanging around in in central CBD of Sydney at the moment. Exactly. Good time to find new premises. You’re very much. Fantastic. And in Chris, how could you tell us about your journey? How long have you been in this? And how did you get into law? Yes.

Christopher Athanassios
So I’ve been I got into the industry when I was 18 years old, as a, as a paralegal as you do when you’re in university. And so I started working when I was 18 years old, moved from firm to firm getting different, mainly in the corporate and commercial sector. Then I was working in a relatively, you know, large boutique firm had a national presence. I left that going to the top T firm. Minter, Ellison focused focused a lot on banking or corporate banking. And then my business partners who I knew one George quite well, sort of knocked on the door and said, Why don’t we start a firm? And you know, if there’s some pushback, and eventually, I said, you know, what, why not take the leap of faith and have a crack and five years never looked back? Once?

Fraser Jack
Yeah, it’s interesting, because your journey is very similar to say young financial planners coming through these days, you know, looking going through a professional year coming become an associate, working through that, I think they are systems loosely based on the legal system, and then obviously been able to start your own firm. Yeah,

Christopher Athanassios
yeah. And yeah, and now the objective is to grow it right, and grow it in the right direction.

Fraser Jack
Yeah, exactly. Right. And, you know, so many similarities, you know, understanding who you best serve, and who you can help and sort of swimming in your lane, all those sorts of things.

Christopher Athanassios
Exactly. And focusing and having a good relationship with clients, I guess, is the other similarity, right? So it’s very relationship driven, especially, for example, a nice shiny market. Yeah.

Fraser Jack
And I guess a lot of your business the same as in a similar tone advisor advisor might have a bit more of a ongoing service agreements with their clients, but, you know, the relationship that you formed with the clients, one needs to needs to have referral relationships and getting new business in all the time. Yeah, exactly. That’s it. So tell us a little bit about, we sort of want to focus today on you know, financial planning books and buying and selling, there’s obviously two sides to that. One is the as the purchaser, and the other is the seller, you know, I think they’ll probably be people on this podcast listening to this that would benefit from both those angles of conversation, probably one more than other, but tell us about what you’re seeing in the space with regards to you know, mergers and acquisitions, and buying and selling of financial planning books,

Christopher Athanassios
well, typically, you know, in, you know, we were acquired, you know, either wants to sell their business or wants to purchase the business, typically, we get involved at a very early stage, because, and that’s usually what’s recommended, right? Because the last thing you want is, as you’re close to trying to agree on, you know, purchase price and whatnot, then lawyers come in or, you know, advisors come in, they’re like, Have you thought about this, this and then he ended up re shuffling, you know, the transaction. So typically, we see a favorable in a favorable situation, clients get us involved early. And, you know, just to follow through with that, preparing for preparing a plan for businesses, you know, they can win when you prepare properly, you can significantly increase, you know, the high the purchase price when you’re acting for the vendor. But but also with that in mind, you reduce stress and, you know, the uncertainty that comes with, you know, transaction, and no, no transaction is click up every transaction, you know, you do have to work with both the vendor and the purchaser because at the end of the day, you know, my view on all this is a successful advice is one that closes the deal, not tip. So here’s the deal, right? It’s very easy to say don’t do the deal, but it’s hard to just take a walk, how can we work around this particular issue or circumstance?

Fraser Jack
Yeah, and they really thought about the idea of a lot of deals that don’t actually go through, you know, that start and then fall over. Tell us about what some of the main causes of that are? Well, I

Christopher Athanassios
think not seeing eye to eye and managing expectations from the big Getting typically valuation misalignment, this is probably a common one where the vendor thinks that they’re, you know, their business is worth a lot of money. And the purchaser says, No, it’s not like the reality is it’s, it’s, you know, the valuation should be x. But also, you know, one thing that you don’t see often where, you know, in the case where you’re not buying a client book, but more so you’re buying the business as a whole integration, cultural integration is a very critical one as well. You know, you would want to see a circumstance where, you know, not only do close to do once you buy the business, but there is an integration in terms of cultural alignment, Client Servicing expectations, etc.

Fraser Jack
Yeah, really interesting. And also, I think, I also feel there’s things like, the licensing that sort of muddy the waters, and you know, what those clients, you know, target markets are,

Christopher Athanassios
yeah, and again, just circling back on, you know, reading the business for sale, or, you know, working with a purchaser to make sure that the purchase is seamless, you know, just like clients speak to financial planners, right, business owners should speak to professional advisors, you know, to assist them, you know, with getting the best best outcome on the transaction.

Fraser Jack
And this is the interesting point. So we’re talking about time, right? We’re talking about the, the time it takes to prepare versus the old, you know, the quick fast sale type, I need to buy I need to buy now. And that type, their preparation time, obviously lead to very different multiples, or business valuations

Christopher Athanassios
and outcome as well. On the transaction,

Fraser Jack
what sort of time are we talking about,

Christopher Athanassios
we’ve seen a deal close. Last Christmas, you know, we had a term sheet that came in mid December, we ended up closing at 31, January. Now, that was really quick. And we really focused on making sure that the client achieved that particular objective. But granted, that particular we just put purchasing, or our client was just purchasing the client book. So it was a bit more, the transaction was a bit more lean. And the focus was a bit more particular on the particular transaction, it was a high quality asset and what buy a high quality asset, what I mean by that is, you know, it was a particular client book that the value of the of the clients were in the purchases are quite high.

Fraser Jack
Now, when you when you talk about the difference between book versus a business, can you just explain that and, yeah,

Christopher Athanassios
so typically, when you’re buying a client book, you’re focusing on the actual client and the rights associated with the clients, you know, being the recurring revenue, the benefit of the contracts, good records, etc. Whereas when you’re buying a business, you’re focused more so on the overall business of the particular target company. So, for example, that would encompass the property where they conduct the business from, so you’ll be taking over the lease, and that can look like an assignment or innovation, but dealing with the new landlord, you’ll be retaining the staff to ensure continuity of the business, you’ll be looking at any material contracts that they have, such as, you know, software providers licensing requirements, you’ll be, obviously you get the benefit, you will try to get the benefit of the client book as well as part of that as part of that transaction. So typically, you see either the acquisition of client book with a focus on the recurring revenue of that other client book, or usually the business. And ideally, it comes down to what the what the objective of the purchaser is, which is important topic, when you’re speaking with the purchaser about acquiring a business, is the idea that the purchaser has a current infrastructure, has the infrastructure ready to bring on, you know, more clients, and then an advisor, in which case, in most cases, they’ll focus on the client book and, you know, maybe retaining one, one advisor or two advisors that are able to service the client book? Or is it the case that you’d like to grow the business in a different in a different state? For example, in which case, you know, the question position to the purchaser is, do we do we purchase the business, you know, in that particular state as an example, so we can have a presence, for example, in Queensland or New South Wales or wa or Victoria. So it really comes down to the circumstance of that particular purchase?

Fraser Jack
Yeah, I was thinking when you were saying that sort of that isn’t a merger or an acquisition? Or is it you know, those sorts of things, but tell us about what’s the difference, then when it comes to valuations or recurring revenue models versus, you know, EBIT? Does type thing Tell, what’s the difference.

Christopher Athanassios
So when you’re purchasing a client book, usually the clients have, you know, there is recurring revenue associated with with the particular client. You know, one of the critical factors that we focus that is important to focus on the person focus focus on is well what’s the purchase price for that particular client book? And and how do you what is the methodology for calculating that purchase price? So usually there is, you know, multiples of recurring revenue and, you know, I this is not my particular specialty, but commentary that I’ve seen, just out of interest in terms of, you know, Well, how do you value the recurring revenue, it really comes down to the, you know, to the client fees. And what I’ve read is client fees, you know, above $3,000, you should typically you got a valuation anywhere between, you know, the 2.7 2.8, Mark to, you know, the three, I’ve recently seen 3.8 3.5 of the recurring revenue, and your recurring revenue, I should say. And, again, I’m no particular expert in this in this, but this is just based on commentary that I’ve been reading and, you know, client fees less than $3,000, you’re looking typically, you know, and multiple of one to one to 2.5, of the recurring revenue. And again, that’s no strict particular that I just, you know, every country that I’ve been reading, yeah, that’s

Fraser Jack
interesting, isn’t it, though, you know, obviously, we think about the cost to serve a particular client. And if it’s below that sort of average of 3000. If we assume the average is 3000, then it really affects the multiple

Christopher Athanassios
Yeah, yeah. And then when you focus on sales, when you typically Brian, the client book, and then when you focus on the business, the purchase of the business that can come in two forms, there’s the assets, you could be purchased the asset, and as I’ve mentioned, previously, when you purchase the asset, you know, you’re getting an assignment of the lease, you’re trying to, you’re, you’re making new offers to staff, to existing staff of the business. So you’re looking at the profitability of the business as a whole. And the alternative to that is you purchase instead of the assets, the shares, so you’re taking over the target company, shares, and that that can come in a number of forms, you can do minority interest, or you generally it’s complete purchase in the business, and you’re effectively stepping into the shoes of the previous vendor, that’s probably the best way of describing it. And again, ways of multiple computing the purchase prices, either EBIT da, or effectively the profitability of the business. And again, not not my particular specialty, but again, a very, very critical and important factor when parties are negotiating what effectively what the purchase price is, and what the computation and how do they compute to that, that purchase price. Yeah,

Fraser Jack
that’s a really interesting point, then when it comes to full on majority shareholding, and I’m assuming there’s probably going to be people that listen to this at one day will buy into a business. And they’re buying a share in the in the company structure, I guess that owns the business and therefore is responsible for all those leases, and staff and, and all those other things. And that’s generally if we went with an EBIT, da business model. So do you ever look at the two of them together and say, Well, you know, I guess if you’re selling you look at the two together, and I want to sell it this way, because it works out to be a higher amount? Well,

Christopher Athanassios
I mean, the purchase is always going to have a review on that, and a comment on that. Right. So it really comes down to the TV between the vendor and the purchasers or their advisors.

Fraser Jack
Yeah, I wanted to say just what we were talking about before about recurring revenue, how does a 12 month service agreement count? Does that count as a recurring or is it just for things that are ongoing service arrangements that are more than 12 months?

Christopher Athanassios
Well, I think I think, you know, my understanding of it is, is it’s it’s let me know if I haven’t answered the question over here. But it’s the annual recurring revenue of that client, and then it comes down to for a particular period, then it comes down to the purchaser doing due diligence to say, Well, how long has that recurring revenue been existent? And you just hit a great point over here, what I’ve seen, at least in the past three or four transactions, is the purchaser typically doesn’t actually make payment upfront of the full consideration. What they end up doing is paying anywhere between them again, subject or commercial negotiation, anywhere between 55 to 75% of the of the total consideration, and then the balance of the of the purchase price is paid over a year or two, statistically about two years to see. Okay, well, how long is this recurring revenue going to be with, with effectively the business? The business quote unquote? Yeah,

Fraser Jack
so it’s the goodwill factor, if you like, from what, from conversations I’ve had in the past, I feel like that only ever benefits that purchase, as in the revenue is not going to go up as much as if it does it sort of, yeah,

Christopher Athanassios
well, until if you tell me which hat do I have on vendor slash purchase? I think from a purchaser perspective, it’s to the last thing you want is to pay 100% of the consideration purchase price. And as we know, this industry is very key person driven, right and very relationship driven. And you know, the advisor that sold the business or the vendor, so that sold the client, I should say, and in two years starting their own or a year and a half starting again and then taking that exact same client because you know, they’ve worked To be three full times, you know, in the past month and whatnot, you know, you’re protecting that that’s the purchase of head on, you’re protecting the goodwill of the business in the legitimate interest of, you know, of the value of paying, you know, 2.2 or 2.533 times recurring revenue. And from a vendor perspective, I guess, you know, really incentivizes them to ensure that the client remains with the purchaser.

Fraser Jack
Yeah, I kind of feel the opposite, right. If depending on which hat you wear, if you’re if you’re buying a business and you want to, you want to go in there with it will pay now, some now and pay the rest later. And if you’re selling, then you might want to go in with, Hey, I just wanted to like front, let’s just do the deal and walk away with those with those revenue. I know, I know, you’re not I know, you’re not a valuer. You don’t do the valuations. But how do you see that then, like the other professions, that’s quite high compared to other professions? Isn’t it? Like there’s accounting books and legal books? They’re not? They’re not up that 2.7 to 3.5 times?

Christopher Athanassios
No, yeah, I agree with that. But I think it you need to look at the business, you know, holistically, right? You know, I’ve seen in other businesses away from professional services where EBIT da multiples are six, seven times. And the reason for that is the infrastructure is there. The key persons, I think the key is one of the keys. And based on my very humble understanding of, you know, valuations, when you’re paying five, six times multiple of an EBITDA and adjusted EBIT, da, the key persons, if they’re taken out of the business, I think the critical component is will the business is self sufficient, it can generate the profit, it can continue to generate the profits, etc, etc. So I think, you know, in terms of, you know, just circling back to your direct comment, I think it is quite relatively high, particularly, you know, for legal practitioners, we definitely have a high multiple, and I think the reason is that it’s very key person driven, right? If I leave tomorrow, in a firm, will my clients follow? Likely? likely follow, not guaranteed, but likely. So I guess that reciprocates the multiple applied.

Fraser Jack
It’s interesting, isn’t there keepers in risk for financial advisors, as you sort of mentioned, the few if you are selling a book, or even the business is as as somebody that’s selling their business to try and make sure that that keeps us from risk is not there, and to transition the clients over to having a relationship with the business more so than the person?

Christopher Athanassios
Yeah, before they show so so the way to police that from a purchaser perspective, or the way to govern that from a purchaser perspective. Now, this concept of key key person risk is effectively the relationship is with the advisor, and the clients like the adviser and the advice like the client, from the purchase perspective, they’re paying a multiple on their recurring revenue. Well, the way police that generally is, you know, introducing concepts of restraint of trade and enforceable restraint of trade. And, you know, the argument, you know, one of the arguments that arguments that I tried to position is, well, if we’re paying, for example, three times recurring revenue on on the playbook, where you should be restrained for three years. That’s, that’s, you know, generally the way I position it, when I’m acting for the purchaser.

Fraser Jack
How does that work, the restraint of trade? Because, you know, I hear different things. Some people say, Well, you can’t stop somebody from earning a living. But then what’s the what’s the idea behind

Christopher Athanassios
says the idea is to protect the interest, the purchasers interest in, you know, purchases, buying the client balkwill, to protect the purchasers interest in that client book. Because the last thing anybody would want is your bank three, for example, and I’ll continue to revert to three times recurring revenue, but for, for the purpose of the example, three times recurring revenue, well, you want to make sure that you haven’t paid three times that clients recurring revenue, only to find out six months later, the vendor is taking that exact same client and could redo it again, and can sell it. So the right to that client or the autonomous to that client again. So so it’s restraining the particular vendor or the associates of the vendor to ensure that, you know, they don’t have they can’t service that particular client in the context of a client book. Now, you want to make sure that you can you want the restraints to be enforceable. And that’s a quite a complicated area. But the idea is to ensure that, again, the purchasers interest in in the context of a client book is protected.

Fraser Jack
You know, in this strategy of restraint of trade, it’s kind of feels a bit lightweight, you’re saying is a restraint of stealing the clients not necessarily trade like they engage in new clients?

Christopher Athanassios
Well, yeah, let’s if we unpack the restraint of trade concept for a moment, there’s there’s a number of ways you can restrain somebody from from trading in, you know, let’s just call it financial planning businesses, you can stop them from investing or participating in any investing in any financial planning business, because they may have an interest in that you can stop them from particular working as an employee in a business for and this can be a combination of all by way, or you can stop them from directly dealing with that with the particular clients that you that you’re about to show. So, you know, in my in my personal opinion, I think a restraint that is particularly enforceable would be, let’s say a common scenario is a purchase a purchase purchases from a vendor or client book, while the restraint can say, well, you can’t touch this particular or you can’t service this particular client book for a period of, say, three years. And usually we introduce concepts such as cascading provisions, which essentially means, you know, three to one, six months, and the idea of that is to say, Well of three years isn’t enforceable, courts will look down at two years, one year, etc. So I think that would be a very enforceable restraint of trade, where you say, Well, you can’t touch this particular client book, I paid you for that compliant book, and we agreed on a fair valuation. But you, you can go, you know, work as a financial plan off for a different business, provided you don’t touch those clients, I could see that as a be a very enforceable restraint of trade. The alternative is, in something that’s a bit more robust, I should say is you can’t touch a playbook, you can’t work, you can’t invest in financial planning, you can’t do anything associated with financial planning, I think that would be a very difficult restraint of trade to enforce. And so I think the short point and the short message to take from it is really apply purchasers should really apply their mind when they’re negotiating this restraint of trade, what is it that you’re really trying to protect?

Fraser Jack
They mentioned culture and staff a little bit earlier? Tell us about what you see in that space? And how you know, how you do due diligence on culture and staff and understanding and cultural moments and fit, you know, how does, because that doesn’t seem very excuse of, you know, my talking about this about lawyer? He is not very like how do you how do you deal with all that? If somebody is more of a I don’t know, that feels more HR than than legal? Yeah, well,

Christopher Athanassios
I don’t deal with it more, it’s more so hearing feedback, I like to take feedback not only from financial planning businesses that you know, we either sell or purchase for, but generally, you know, I do a bit of work in the private equity field. And it’s, again, you know, being a lawyer, you try to put yourself in the practical scenario and focus what’s on critical because generally, lawyers are criticized for only focusing on an indemnity clause, which will likely crystallize or not crystallize. So I like to take a step back and check. Once a transaction completes, let’s touch base with content, just see, how did the purchase or how did the completion go? Is there a good integration, and one of the common things that I see, at least in the private equity field is part of the due diligence period, or, you know, as as the purchases acquire the business of the vendor, interviewing with staff, so just meeting the staff, even if it’s for a coffee, trying to understand, you know, the person, the culture of the staff, and getting, for example, client references is not a bad idea. reiver do you do the clients get along, you know, with the particular staff? Or is it is the culture not not so aligned. So I guess, doing practical due diligence is probably something that I don’t see much in the financial planning. And I’m not sure if you know, the vendors particularly or over the clients, but I don’t think it is actually a bad ID, even if it’s a quick 1520 minute coffee on a confidential basis. You know, clients don’t need to disclose their full name. So the vendors produce protected. But if the purchaser has gone to purchase the business, and buy business owning assets, or the shares of the target company, I don’t think it’s a bad idea for the purchaser to say, Oh, how do I take a step back over here? How do I really dig into the business over here? What are the staff? Like? Do the staff get along with the clients or the clients? Do the clients, like the particular advisors before make an offer of employment to that advisor, just really digging deep and trying to understand the culture, because it’s all good, and well to sign the documents and complete the deal. But what happens after the integration, that’s the most important post integration, m&a what happens thereafter? That’s, I guess, is the critical point.

Fraser Jack
There’s so many bits to that. Now, just you mentioned the due diligence period, give us give us a quick example of how that works. Like how long has it normally taken? Yeah,

Christopher Athanassios
so typically, in transactions, where you’re buying the business, and whether that been in the form of assets or or shares, it’s common for the vendor to give the purchaser access in the for due diligence, and then that access is restricted or who’s entitled to, you know, due diligence, usually to the purchasers advisors, and that includes lawyers, accountants, etc. And ordinarily, there’s a period and you know, that access is refined under the, you know, under the review and comment of the vendor, and the purchaser would essentially getting get in a quote unquote, and start issuing request for information and, you know, again, this is in the context of selling, selling and purchasing the business, not so much in the client acquisition book, but more so in the context of of the business larger businesses. And request for information is the common method of which is essentially a list of questions prepared by the purchase or the pitches advices. And the vendors got to respond to that, but also physical access to the premises to see how the operations continue or effectively occurred during business. This house.

Fraser Jack
Yeah, I’m interested in the way you, you mentioned there the idea of actually, you know, speaking to the clients, because I guess that could be a very difficult area for somebody who’s selling to give purchase, especially if they’re in the obviously the same business, access to the the clients that say here, bring them up and talk to them.

Christopher Athanassios
But you see, if we just apply our thought, and this, this is one thing I’ve tried to really speak to vendors about, right? Like, let’s unpack that for a moment, a client, if the vendor is got a good relationship with a client, right? I’ve got a lot of good relationship with my clients, for example, it from a vendor, you got to think about it as a win. How do I show to this purchaser? That the clients like the business, the clients, like the staff, how do I maximize my value to exit this business? Right? Well, I can introduce them to a few close clients or clients that won’t disclose their confidential information, and really position and present the business favorably to the purchaser.

Fraser Jack
Yeah. And so I’m imagining, then in this situation, you choose your, your, your friendly clients are the ones that like you are the ones that trust you. But then yeah, suppose you’ve got to go to them and say, hey, look, I’m transitioning out of this business, and I’m selling it and I want to sell you across to these other people as that conversation goes,

Christopher Athanassios
well, I mean, that conversation is always a bit sensitive, as we know, right? But if you can just give the client the comfort and show the client that the proposed journey or what that looks like, you know, in this day and age, I feel like, you know, clients want the best both parties want the best for for both. I mean, you know, I could just imagine, I’ve certainly got this in my circle of network, you know, I work closely with an accounting firm error accounting, and one of my mates one of the partners there, if I said to him, we’re selling, for example, Milan prints, I could see him generally being happy wanting to be involved in the process, and assisting me, and assisting us in getting maximizing the value. So I think it comes down to relationship transparency, and transparency is definitely key. Yep. And and, you know, taking them through the journey, I guess, or what the proposed journey looks like, and how does it benefit them? For example, is the purchase of providing a different service offering that the current business doesn’t offer? And how does that benefit them?

Fraser Jack
Yeah, it’s a good day exactly right, find it find a way that this could be a win for the client, present that to them. And sorry,

Christopher Athanassios
just just to add to that, and it may be the case that when you consider it from a vendor perspective, it may be the case that, for example, if you’ve got top two, if you’ve got 30 clients, right, maybe you refine it, refine that, you know, involvement of the due diligence, organize it then being involved in the sale process, to the top 10 clients, the most valuable clients, the ones that really add to the to the value of the business or the purchase price.

Fraser Jack
That’s also I guess, a bit of a risk to that if that if those top 10 clients aren’t completely satisfied with the services that they’re getting, then they might turn around go, oh, well, you’re selling on a go fine. I’m gonna go do my own due diligence and find somebody else. Talk to me about privacy act concerns, whether it be through selling a book or a business. Obviously, the consumer is providing confidential information and private information to their advisor for that advisor to then on salad information, obviously, as part of a file to a new advisor, how does it How does it sit with any of the privacy regulation stuff?

Christopher Athanassios
Typically, from a purchaser perspective, you just seek basic warranties that, you know, the Privacy Act has been complied with. So that’s from a purchaser sort of perspective. And from from from a vendor perspective, I guess you just need to ensure we just need to ensure that, you know, there’s no breach of any privacy sort of regulations. I think from a vendor perspective, if they’ve got the proper appropriate protocols and procedures in place with their clients such that, you know, they’ve complied with all you know, we’re allowed to disclose your personal information, if required by law, or if you know, we’re selling a business, then typically a vendor will be covered off in that perspective. And from a purchaser perspective, we just the typical warranty, we say we seek is the vendor or the business has complied with all laws relating to privacy related to privacy.

Fraser Jack
Yeah, fantastic. And so just on that transition across it seems to seem to feel like there’s quite a marketing strategy when it comes to presenting to the clients that they’re now moving to a new a new business, are you seeing businesses that are doing well there or what they might be doing?

Christopher Athanassios
Well, I’m I’m ordinarily not involved in that process. I just hear about and I think that the biggest thing from advisor perspective is to make sure you know, the clients are you know, well aware, etc. Because you know, if your purchase price is linked to the to the relevant upline, you want to make sure that that client is either not annoyed or doesn’t understand the culture of the new business, etc, etc. So, so usually from I don’t hear a lot of feedback, but usually from our perspective, we say, you know, just make sure that you’re on, you know, you’ve kept quite up to date, etc, etc.

Fraser Jack
Yeah, there’s generally a story isn’t there as to why that person is selling that particular part of the business or the or the whole business. And I guess it’s just about transparency and making sure the clients understand that story. Yeah. And from a purchasers point of view, there’s probably also a good story to be told as to why they really want to invest or bring on that particular class. Yeah, and with, with the size of businesses are we seeing? Because I’ve spoken to different people before around the concept of what’s a good size business to hold a valuation? Are we seeing that, you know, bigger businesses can get different sort of multiples or different business valuations when it comes to versus the one man band type business?

Christopher Athanassios
Almost certainly, I think I was touching on that a bit earlier. The bigger businesses, there is many sessions on valuations and arguments or multiples on EBIT, da and profit and whatnot. That’s in the context of a large business. And more so from a client book perspective, again, the bigger the client revenue in terms of per client, the bigger the multiple is, and the lower it is, the level of the client revenue or per client revenue, the lower the multiple Isa, in that perspective, and again, it just goes down to a lot in the context of a sell a business, whether it be by way of asset or or shares, it comes down to if the key persons one of the factors, again, in my humble opinion, not not speaking about valuations a lot, but if the key person to remove is the business, can the business continue to operate without that key person and generate a profit? Yeah, and probably one topic that we haven’t touched on is another form of, you know, sell our purchases, if you know, there’s a founder of a financial planning business. And then, you know, they’ve had an advisor that’s worked with him for many years. And that advisor, you know, usually called succession Right. And, you know, the founder of founding financial planner wants to sort of slowly transition out. And that advisor is then introduced to the business and given equity in the business called quote, succession, right succession planning, that that advisor would typically look at the profits of the business and pay a multiple of the of the profits. And I guess the Win win in that is, well, there’s no really strict change in this change in ownership, but not changing culture, because the advisor has been part of the business is where the client is familiar with declines. The only upside is the adviser has equity in the business now always propose to have equity in the business.

Fraser Jack
Yeah, it seems. So it seems like a great I think a lot of people strive for that type of, you know, somebody to take over the business and transition out. I think law firms obviously have got many, many years of of doing this with regards to bring on partners and those sorts of things. I think we’re a little bit newer in the financial advice section. And obviously, I think a lot of people have looked for a transition, but haven’t been able to find the right person or something happens in their person stage a couple of years and then decides that they it’s not what the business that they’re after, after all, I think and I think a big part of that comes back down to finding somebody who wants to work with that ideal client not just wants to work in in the business. How do you find working with MSLs in different AFS, ELLs and transitioning businesses from one to another, I think, because it to me that sort of whether you whether you buy and sell within your same licensee, or whether you’re transitioning across a different licensee just adds a different layer of, of, I guess cloudiness,

Christopher Athanassios
with the only environment that I have, with the emphasis, we had an advice on whether the FSL is appropriate for relevant financial planning business, and you know, we’ll get advice. But usually, we just one of the conditions that we include is, you know, a corporate authorized representative agreement is negotiated between the relevant parties, as part of the sale and purchase, so that we’ve got a very minor touch on the AFSL sort of stuff, just because it’s got its own sort of complexity. Typically, you know, when we involved in more so from purchase aside, we make sure our conditions are pretty watertight. And one of the conditions are, you know, there’s a corporate authorize or appropriate corporate authorized representative agreement entered into by the parties and agreed by the parties.

Fraser Jack
Yep. And just just in most corporate authorized representative agreements, you’d often see, you know, a buyer of last resort buyer, first resort type, probably first first resort, I would say, you know, like, if you’re going to sell the business come to us and ask us first. Yeah, yeah. Fantastic. Alright, so quick, quickly, then tips before we wrap up tips about what we can if you’re if you’re selling a business, you mentioned things like, you know, get involved early, and making sure that you really, you this transition takes a little bit of time and reducing that keeps us from risk. Are there any other tips for businesses looking at selling,

Christopher Athanassios
you have got some critical pointers, so preparing early for any sale or purchase so getting advisors involved can you know make the process quite seamless? Knowing the truth from a vendor perspective knowing the true value of the business and from a purchase purchaser perspective critically analyzing the value of the business and how they compute the proposed purchase price. And then with that in mind, the you know the derivative that come with that is okay, well what am I conditions associated with the purchase? If I’m buying the business for a million dollars, from a pitcher perspective, how am I going to fund that? Do I go get debt? I’m not going to do past it half dead half, you know, equity or do I use cash cash in the bank? How do I pay that purchase price is a common one. And, you know, my strong recommendations with these two person driven businesses is, you know, break up that consideration 60 70% upfront the remaining over a two year period, get to test a client book, I focus on client because that’s really the value of the business, the client, and then pay it over a trench period of that one two year period. And with that in mind, what else what else do I want to be giving us part of the requirements, part of the purchase price, restraint of trades? is pretty good, a critical important one? Is my due diligence satisfied? And do I need further advice as to service to the particular pinebook

Fraser Jack
is one of the ideas around restraint and try to explain to employ the person or or have a workout period?

Christopher Athanassios
Yes. So when when usually you’d have if you’re going to break the purchase price up, say 60 70% up front, and then the remaining over a two year period that would be employed. Now whether that employment looks as an independent contractor or an employment, usually you need to get tax advice, because there’s pros and cons with both. But you the restraint will obviously carve out, you know, the fact that they’re servicing effectively the purchase or the purchases at clients that that restraint will be there.

Fraser Jack
Yeah. And you mentioned tax advice. Obviously, you talked about advisors before, you know, getting accountancy advice, as well as legal advice.

Christopher Athanassios
Well, I think it’s critical that, you know, the lawyers in accounting, I think on every deal, whether financial planning or otherwise. I think it’s critical that the lawyers and the accountants are on the same page. Because I think that makes a world of difference on a deal.

Fraser Jack
Yeah. Chris, thanks so much for coming on and chatting to us about all the pros and cons and tips and ideas around purchasing, buying, selling mergers, acquisitions, transitions, all those different things around getting in and out of a business. If someone wanted to continue the conversation with you what’s the best way for them to get hold?

Christopher Athanassios
He might email a best him by email or by my mobile phone. I’m best on the mobile phone not not the office line or just like picking up the phone straight away into speaking to somebody. I’m happy to share those details with you, Fraser

Fraser Jack
fantastic yet well give me go now let’s throw them out there.

Christopher Athanassios
So mobile number is 04. Double 2 593691. And my email, which is long, because my last name, but it’s c.at Wh h a n a double S iOS at Miller prints.com. There you

Fraser Jack
Yep. So Miller prints.com. They use the website. Exactly. And you probably find you on LinkedIn

Christopher Athanassios
too, or I’d imagine most definitely on LinkedIn as well. Fantastic. Chris, thank

Fraser Jack
you so much for coming on and sharing with us what you’re seeing in this space. Really appreciate it.

Christopher Athanassios
Great. Thank you so much for having me.

Listen to the podcast on the links below or on your favourite platform

General disclaimer for this podcast and all XY Education podcasts
https://www.xyadviser.com/disclaimer/

DISCLAIMER: The XY Adviser website and all content contained on the website is limited to general information. It does not constitute legal, financial or other professional advice. XY Adviser does not hold an AFS licence and does not provide any financial services. Nothing on this website should be interpreted as financial advice. Before making any investment decision, XY Adviser recommends obtaining financial advice from a qualified financial adviser.