• Home
  • Investment
    • Multi-asset
    • DFM & Model portfolios
    • Platforms
    • Ratings, Research & Risk
    • Tax-efficient investing
    • Markets
    • Companies
  • Retirement
    • Pensions
    • Income
    • Investment
    • Regulation
    • Estate planning
    • Equity release
  • Your profession
    • Adviser tips
    • Business models
    • Companies
    • People
  • Regulation
  • Tax planning
  • Protection
  • Technology
  • Smarter Business
  • Events
  • Whitepapers
  • Industry blogs
  • Newsletters
  • Multi-Asset Review
  • ESG
  • Sign in
  •  
      • Newsletters
      • Account details
      • Contact support
      • Sign out
     
     
    •  

      Personalise your on site experience

      Download and use the apps

      Access your subscription from outside of the office

      Get relevant news and insight straight to your inbox

      Sign in
     
  • Follow us
    • Twitter
    • LinkedIn
    • Newsletters
    • YouTube
  • Register
  • Events
    • Upcoming events
      event logo
      Professional Adviser Working Lunches 2021

      A series of invitation only "meet the manager" virtual lunches to discuss how a multi-asset strategy can benefit your clients and your business.

      • Date: 10 Mar 2021
      • ONLINE, ONLINE
      event logo
      Professional Adviser Awards 2021

      Professional Adviser is once more issuing the call for adviser businesses from across the UK to showcase their knowledge, skills and commitment to client care by entering our 2021 Awards.

      • Date: 11 Mar 2021
      • ONLINE, ONLINE
      event logo
      Professional Adviser Multi-Asset Masterclass 2021

      Delivered online over two half-day sessions, the Multi-Asset Masterclass will look to provide a case for multi-asset investing as well as an outlook for the sector over the year ahead.

      • Date: 17 Mar 2021
      • ONLINE, ONLINE
      event logo
      Professional Adviser ESG Masterclass 2021

      Professional Adviser is excited to launch the new ESG Masterclass, taking place live online from 28th - 29th April 2021. Delegates attending this event will benefit from thought-provoking presentations, informative Q&A sessions and structured CPD hours.

      • Date: 28 Apr 2021
      • Live Online, Live Online
      View all events
      Follow our events

      Sign up to receive email alerts about our events

      Sign up

  • Whitepapers
    • Find whitepapers
      Search by title or subject area
      View all whitepapers
  • Industry blogs
  • Multi-Asset Review
  • ESG
Professional Adviser
Professional Adviser
  • Home
  • Investment
  • Retirement
  • Your profession
  • Regulation
  • Tax planning
  • Protection
  • Technology
  • Smarter Business
 
    • Newsletters
    • Account details
    • Contact support
    • Sign out
 
 
  •  

    Personalise your on site experience

    Download and use the apps

    Access your subscription from outside of the office

    Get relevant news and insight straight to your inbox

    Sign in
 
  • Trending now
  • Sunak freezes LTA
  • Preparing for ESG changes
  • SJP plans 200 job cuts
  • Your profession

Advice firms acquired by Fairstone net average 111% earn-out price

Downstream buy-out programme

Lee Hartley: "These figures underpin our position as a proven, secure buyer of quality businesses.”
Lee Hartley: "These figures underpin our position as a proven, secure buyer of quality businesses.”
  • Jenna Brown
  • Jenna Brown
  • 19 November 2020
  • Tweet  
  • Facebook  
  • LinkedIn  
  • Send to  
0 Comments

Advice businesses bought out by Fairstone attain an average 111% of their original sale value with one in six acquisitions receiving more than 135%, according to data from the firm.

The consolidator and Chartered financial planning operation said its downstream buy out (DBO) programme resulted in all its acquisitions either meeting or exceeding their target sale values.

It added publishing full earn-out data was a first for the industry. An earn-out is where all or part of a purchase price is linked to the future financial performance of a target firm.

Related articles

  • Nucleus encourages shareholders to vote for James Hay deal on 30 March
  • Watch the 2021 PA Awards online on 11 March
  • Leigh Day takes first formal step against Link on behalf of Woodford investors
  • Terry Smith names potential Fundsmith successor

Fairstone-acquired practices received an average 111% through the earn-out process, it said. With a sixth netting more than 135%. It said none of the firms that completed its two-year DBO programme got less than 100%.

Some 39% of firms received more than 5% in excess of their sales value; 22% got 20% above the original purchase price and 17% more than 35% higher than their full sale price.

It said the average excess sale proceeds across all acquisitions and all earn-out stages was 11%.

The business said 45 firms had been incorporated through the DBO programme since 2011. Its tenth of 2020, which completed this week, was Hampshire-based adviser Cube Financial Planning.

Fairstone, headquartered in Newcastle, said it had made total excess consideration payments of £5.4m to date.

Source: Fairstone

Chief executive Lee Hartley said securing full earn-out potential was a "differentiator" in the sector.

He said: "Some large consolidators are delivering earn-out payments that result in an average of between 80% and 90% of the original headline price negotiated for those acquisitions. Crucially this implies that some companies are getting even less than that.

"At Fairstone, the firms that we have acquired on average receive 111% of their total earn-out value, with some receiving as much as 139% of their expected consideration. Very importantly, none receive less than 100% of their original sale price.

"These figures really set us apart from our peers. We describe ourselves as an acquirer of sustainable growth, not simply a consolidator, and these figures underpin our position as a proven, secure buyer of quality businesses."

Fairstone's DBO model typically consists of a two-year integration period where it works with advice businesses on integration prior to final acquisition. All advisers and staff are then retained within the businesses with no client service disruption.

Hartley added: "Dealing with integration post-transaction can often lead to significant friction, placing undue burden on both parties and critically creating business disruption during the key early phase of an earn-out.

"Integration isn't always easy and can involve a lot of change - that is why we deal with this process gradually over a two to three year period ahead of the sale and help our partner firms to grow profits in the intervening period. This approach also helps to reduce integration risk and at the same time relieve pressure on selling shareholders.

"Importantly, our earn-out structures are based on maintaining a sustainable level of financial performance and nothing else, which means that anyone looking to sell their business is in full control of their earn-out. We simply measure revenue and underlying profitability to validate the earn-out, there are no onerous obligations that sit outside of the sellers' control or which compromise clients in any way."

Hartley said the firm's strategy was borne out in the data. "Our partner firms are delivering more revenue and growth than either their own forecasts or our buy-out agreements are based upon. In very simple terms, we are buying great businesses and then sharing the upside."

Fairstone in 'strong position' to continue acquisitions during pandemic as it snaps up another IFA

Leigh Johnson is former principal of Lincolnshire-based Zimb Johnson Bespoke Financial Planning, which was acquired by Fairstone in 2018.

He said: "There were several reasons I decided to partner with Fairstone. Clearly, I felt it essential that the company to whom I sold my business, conducted themselves with integrity, honesty and in a clear and straightforward manner.

"This was vital to ensure that my clients long term interests would be assured. Equally, as the seller of my business, I was keen to ensure that the sale proceeds I expected to receive, were actually likely to be paid. I was entirely satisfied on both counts. 

"I was very pleased indeed to have been able to increase our profitability year on year because it represented a measure of very favourable client response and satisfaction. We received 100% of our sale value, with no fuss and no quibble and there was never any doubt throughout the process that this would happen."

Fairstone has more than 69,000 clients and operates nationally across 42 locations. The business has 380 regulated advisers and 275 operational staff.

  • Tweet  
  • Facebook  
  • LinkedIn  
  • Send to  
  • Topics
  • Your profession
  • Business models
  • Fairstone
  • Lee Hartley
  • Zimb Johnson Bespoke Financial Planning
  • Leigh Johnson
  • consolidation
  • Earn-out
  • consolidator
  • adviser consolidation

More on Your profession

The Nucleus Court Meeting and Nucleus General meeting are scheduled to be held at the platform’s head office in Edinburgh at 10am and 10:15am.
Nucleus encourages shareholders to vote for James Hay deal on 30 March

Vote on £145m deal

  • Your profession
  • 05 March 2021
PA's 2020 Adviser firm of the year - UK was Berry & Oak.
Watch the 2021 PA Awards online on 11 March

Save the date

  • Your profession
  • 05 March 2021
Kirsty Anderson: "Remember market crashes can and do happen, and investment returns almost certainly won't mirror those that have been modelled. Stress testing is one of the most effective ways of helping the client understand this."
Kirsty Anderson: Stress testing the cashflow model

When was the last time you reviewed your processes?

  • Your profession
  • 05 March 2021
Chris Budd: Considering afterlife and client objectives

What life memory would you choose?

  • Your profession
  • 05 March 2021
Meet the PA Awards tax-efficient adviser of the year finalist: WIS Mortgages

Five-minute video

  • Your profession
  • 04 March 2021

More news

Nucleus encourages shareholders to vote for James Hay deal on 30 March
  • Your profession
Nucleus encourages shareholders to vote for James Hay deal on 30 March

Vote on £145m deal

  • 05 March 2021
Watch the 2021 PA Awards online on 11 March
  • Your profession
Watch the 2021 PA Awards online on 11 March

Save the date

  • 05 March 2021
Leigh Day takes first formal step against Link on behalf of Woodford investors
  • Investment
Leigh Day takes first formal step against Link on behalf of Woodford investors

Alleges Link "mismanaged" WEIF

  • 05 March 2021
Kirsty Anderson: Stress testing the cashflow model
  • Your profession
Kirsty Anderson: Stress testing the cashflow model

When was the last time you reviewed your processes?

  • 05 March 2021
Chris Budd: Considering afterlife and client objectives
  • Your profession
Chris Budd: Considering afterlife and client objectives

What life memory would you choose?

  • 05 March 2021
blog comments powered by Disqus
Back to Top

Most read

Spring Budget 2021: Sunak freezes lifetime allowance
Spring Budget 2021: Sunak freezes lifetime allowance
Spring Budget 2021: DWP to backdate £3bn in state pension underpayments to women
Spring Budget 2021: DWP to backdate £3bn in state pension underpayments to women
Spring Budget 2021: Live blog for financial advisers
Spring Budget 2021: Live blog for financial advisers
Kay Ingram: Sunak's LTA freeze creates 'bizarre disincentive'
Kay Ingram: Sunak's LTA freeze creates 'bizarre disincentive'
10 key takeaways from the Budget
10 key takeaways from the Budget
  • About Us
  • Contact Us
  • Marketing solutions
  • Terms and conditions
  • Policies
  • Careers
  • Twitter
  • LinkedIn
  • Newsletters
  • YouTube

Incisive Footer Logo

© Incisive Business Media (IP) Limited, Published by Incisive Business Media Limited, New London House, 172 Drury Lane, London WC2B 5QR, registered in England and Wales with company registration numbers 09177174 & 09178013

Digital publisher of the year
Digital publisher of the year 2010, 2013, 2016 & 2017
Loading