Vendor Story £290,000 Oxfordshire

This vendor first contacted Draper Hinks 5 years before he wanted to sell his practice.  It was important to him to understand the process and what was involved.  He was not enjoying running his practice but could not afford to retire.

When he was ready to start the process, he got it touch.  We had a catch up call that reminded him of what was needed, he completed our paperwork and sent it back so we were fully prepared  to market his practice.

We sent out a mailer and found a number of interested parties which he met, and that resulted in three firm offers.  Interestingly, he did not accept the highest multiple offered, but chose the firm he felt would be the best “fit” for his clients.  Getting the right “fit” normally results in a higher retention of clients and thereby a higher payment to the vendor.

The buyer was keen to get the deal done and suggested a completion date two and a half months after the offer was accepted.  The vendor felt a little bit rushed so decided to extend the time scale to six months post offer being made.  The buyer was happy to wait.

A month before the due date for completion, the vendor announced that he was going to delay completion for 12 months.  He needed to earn one more year’s profits to boost his pension because the market had gone down and he was worried about not having enough money to live on.  The paperwork had all been agreed in principle. The buyer was not over the moon about the delay but consented.

A date was set in the diary for the completion to take place, both parties resumed communication and had a number of meetings to get up to date figures.  The vendor had taken legal advice and told the buyer that he was expecting to be paid on the basis of the full fees invoiced and paid in the prior 12 months.  The buyer informed the vendor that due to the fact certain clients had left the practice, with fees totalling over £20k, the amount of fees being bought was to be reduced by £20k.

Unfortunately, the vendor did not agree.  He stated that his solicitor had informed him that he should be paid on the basis of fees invoiced in the last 12 months, irrespective of the fact that there was evidence to show that several clients had left the practice.  You can imagine that this did not go down well with the buyer and was a point of contention.

It also transpired that the vendor had employed a subcontractor, over the previous years, to do some of the work for the practice and on completion of the deal, the vendor had agreed to give some clients away to the subcontractor.  Despite agreeing to do this with the subcontractor, the vendor still expected to be paid for these clients by the buyer.  You can imagine that this also did not go down well with the buyer.   The vendor again said that he should be paid on the basis of the fees invoiced in the last 12 months according to his accounting system used.

Ok, now picture this, we are days away from completion.  It has taken 20 months to get to this point.  Paperwork had been signed over 12 months previously and everything is beginning to unravel.  However, both parties have signed to say the deal is going to go ahead within the week or either party could sue the other party.

I managed to step in, get both the buyer and seller to agree what the first payment should be.  Neither party was happy.  It was a compromise.  Each side thought the payment was wrong. It was too low for the vendor and too high for the buyer.  But the deal went ahead.

I have to say in all of the years we have been selling accountancy practices we have never come across such a difficult situation before.  The moral of the story?  When you are either selling or buying fees, always make sure you agree right at the outset the basis of the fees you are buying.  If there is proof that a client has left the practice, then it is not reasonable for the buyer to pay for that client.  Don’t leave it to a few days before completion to agree on the way forward.

But most importantly don’t give up, keep going and you will get there.