Pandemic tipped to drive advice M&A surge

Cornwalls partner Dennis Tomaras said in the coming months, a number of advice practices would look to take advantage of increasing numbers of practitioners retiring from the industry as they re-evaluated their business strategy in a post-COVID world.

“Financial advisers have been exiting the industry in growing numbers over recent years and this is fuelling advice businesses seeking M&A opportunities,” Mr Tomaras said.

“It’s probably a 50-50 split between those businesses seizing the initiative to merge for survival reasons and those acquiring a practice that will facilitate growth aspirations.

“Financial advisory practices are primarily small business operations and are no different to their peers in the broader SME sector, recovering firstly from the initial shock of COVID-19 and now learning to live with the virus. In making the most of the situation, considering M&A opportunities is an outcome of the current scenario.”

Mr Tomaras warned those practices considering an acquisition that it was important not to rush into a deal, as significant pre-preparation was needed on both sides.

“You wouldn’t sell your house without making sure it’s ready for inspection and it’s the same in a business deal. Acquirers and target entities need to make sure their legal and financial affairs are up to date and that all federal and state tax returns are in order,” he said.

In an industry accustomed to the rigours of diligence in the provision of compliant financial advice, sellers too want to know their business and staff are going to be in good hands. A good idea is to get the company advisers to undertake a high-level health check of the business before any M&A activities commence.

“Directors of companies also need to be aware that they may be personally liable for certain past tax liabilities of a target company,” Mr Tomaras said.

He said other tax implications also needed to be considered, including the method of sale, as Australia’s CGT laws generally favoured a transaction involving the purchase of shares in a business, but buyers were often more interested in purchasing tangible assets such as client books.

In addition, acquisition costs of the different business assets, such as intellectual property and internal software systems, would also have a material impact on the tax outcomes of a transaction, meaning they would need to be considered carefully and usually involve a qualified independent valuer.

“The bottom line is that as M&A activities increase in the financial advisory sector, both buyers and sellers need to be ready for a deal and need to do their homework across a range of revenue law and other relevant issues,” Mr Tomaras said.