Merge or partner with a peer

You may know other firms local to you, or you may be approached by a firm who has specifically sought you out to discuss the idea of merging or partnering. When done right, this approach offers some real advantages.

For example, merging or partnering with a local peer could provide greater efficiencies in the form of reduced costs for both businesses. It may lead to savings for clients due to a stronger position of negotiation with platforms and providers. And it might also solve recruitment issues, providing access to quality support or more advisers.

A merger or partnership could also be a step towards a future internal exit route, providing the scope for a management buyout, or employee ownership trust where currently you don’t have the breadth in your team to explore these options. Or where you’re looking to exit at the same time as your new shareholders or partners, on the open market a firm with a larger profit figure and a stronger management team may receive a better offer financially and/or the ability to sell the firm as a ‘going concern’.

In principle, this route may appear attractive. And when the right businesses combine, great success can be achieved. But when reviewing this option, there’s lots to think about, so consider these key questions:

• What value are you both bringing, and how are you setting your valuation at outset?
• Does one business carry risk the other doesn’t?
• Is there really such thing as a true merger?
• Who is going to take those key managerial roles across the newly formed union?
• Is there a strong alignment in your approach, proposition and charging structure? Can these be harmonised?
• What are your future objectives, and is there an alignment here?
• Are both parties going to contribute similarly to future growth of the business?

You may like your peers as people, but going into business together is like a marriage. You should see the shareholder or partnership agreement as a pre-nup – hope for the best but plan for the worst!