It is an all too familiar story. A big name from a large investment house decides to strike out alone. They take a team with them, set up shop and establish themselves as the newest entrepreneurial boutique in town.
Years pass and sadly a number of scenarios are likely to present themselves: growth stagnates, regulation costs rise hitting the bottom line or founders approach retirement age and want to take a back seat.
Founders are then faced with a dilemma: put successors in place or simply sell the company. What is the most desirable option, given the blood, sweat and tears that are often associated with establishing a business?
An all-out sale appears to have been the preferred route for a fair few boutique founders over the past few years. In 2012 Cheviot was sold to Quilter in a deal understood to be worth £100 million, while Taylor Young was absorbed by Rathbones in the same year.
Heartwood’s sale to Handelsbanken last May marked an interesting course, giving the boutique distribution opportunities and providing deep pockets to allow the business to investment for its future. But at the same time, it has been given relative independence.
Succession planning represents a preferred course for others. David Scott (pictured), who founded Vestra in 2008, has stepped back as managing partner, with Ben Snee taking over.
Scott continues to work in the business, with a focus on finding new growth opportunities. He views succession planning for all key members of the team as a big part of managing operational risk within the business and has so far resisted pressure to sell.
‘I think for any business you have got to make sure you have a robust management process in place.
‘In the early days it is very much entrepreneurial and this is driven as the business gets bigger. No individual can do everything. The secret is to build a good management team in various areas,’ he said.
To sell or not to sell?
While a sale can never be ruled out, Scott warns it is dangerous to set up a business with the sole view of later selling it on for profit.
‘You want to set up a business that is very strong and robust and run on a good corporate grounding so that you have got a sustainable business. Then the business could be sold but if not it does not really matter. If you set out to sell it from day one it induces a different set of behaviours, which may not be conducive,’ said Scott.
If a sale is seen as the preferred option, Scott advises taking a long-term view and avoiding short-term distractions.
Having sold Scott Goodman Harris, which he previously founded, to UBS in the 2000s, he said: ‘Always make sure whatever you do, there is an alignment of interests between who is buying you and what you stand for.’
On the other hand, a sale can side-step the awkward issue of how to legally transfer ownership of the business to senior partners within the company.
Thurleigh founder David Rosier points this out, having taken the decision earlier this year to merge with Ingenious Asset Management.
This was seen as a solution to a growing regulatory burden and a means of gaining scale and resources.
Commenting on the rationale behind his and Charles MacKinnon’s decision to sell to Ingenious, Rosier said: ‘We decided we weren’t going to be able to grow the business at our age at the rate to allow us to put in a really good succession plan. We would have loved to have done that and continued with it.
‘The problem you have in a boutique if you put in a succession plan is what happens when senior partners retire? Is there enough capital in the business to buy out partners, because by and large they are partnerships?
‘That is always the dilemma, or do you retire and leave capital in the business and then existing partners have to pay you out each year because you still have capital in the business.’
Six months in and Rosier said the integration has worked well due to the similarities in culture and investment approaches between the two organisations.
For those looking to appoint a successor, how do you make that all-important decision?
In Scott’s view it has to be someone you trust, who shares the same goals, ethos and values of the company.
David Cowell of Myddleton Croft has been planning succession since his business started and has been distributing equity to key members of the team with this in mind. This also helps to incentivise staff and encourage growth.
‘There is little point me sat on 70% of a small enterprise, when I can sit on 30% of a large one,’ he added.
He takes a view on whether someone would make a good successor from when they are appointed in the first place.
‘I have only appointed people who can carry on the business if I take a back seat. If you are planning the long-term viability of a business you have got to do that,’ said Cowell.