Selling an IFA firm: share sale with an earn-out tied to funds under management and client retention

At a glance

We acted for the founder of an Edinburgh financial planning firm on the sale of the company to a larger acquirer. The price, in excess of £2m, was paid partly on completion and partly through an earn-out linked to the funds under management and the retention of the firm's clients. The buyer was advised by a corporate firm that acts for listed and large companies, so the documents were negotiated at that level. The sale completed in the summer of 2026.

The client and the objective

The seller had built the firm over many years and wanted to exit and prepare for retirement. He was willing to accept part of the price as an earn-out, because that is the norm when a financial advice business is sold, but only if the earn-out was something he could actually earn: an earn-out based on client retention is worthless if the buyer is free to lose the clients.

The deal

• Share sale of the entire issued share capital to a trade acquirer.
• A payment on completion and an earn-out over a defined period, measured by funds under management and the retention of the existing client bank.
• FCA change-of-control approval as a condition, with completion timed around it.
• Buyer represented by a large corporate law firm; seller represented by us on a fixed fee.

Key legal issues and how we solved them

Protecting the earn-out

The seller's main exposure was that, once in control, the buyer could take decisions that reduced the earn-out: moving clients to other advisers, changing the fee model, cutting service, or restructuring the business so that funds under management fell for reasons unrelated to the seller's performance. We negotiated a set of earn-out protections in the share purchase agreement: restrictions on what the buyer could do with the business during the earn-out period, positive obligations to retain the existing clients and service them to the current standard, and rules on how funds under management would be measured so that the buyer could not move the goalposts.

Change of control under the FCA regime

A buyer acquiring control of an FCA-authorised firm needs the regulator's approval before completion. We built the approval into the conditions and the timetable, dealt with the information the buyer needed from the seller for its application, and made sure the seller was not left holding the business indefinitely if approval was delayed.

Negotiating against a large firm

The buyer's solicitors produced a long-form share purchase agreement written for much larger transactions. Our job on the seller side was to strip out what did not belong in a deal of this size, keep the warranty schedule and the limitations on the seller's liability proportionate, and make sure the disclosure letter did its work.

Warranty limits for a retiring seller

A seller heading into retirement does not want open-ended exposure. We negotiated a cap, time limits and a de minimis for warranty claims, and a disclosure process that limited the seller's risk to what had not been properly disclosed.

Outcome

The sale completed in the summer of 2026 following FCA approval. The seller received the completion payment and is working through the earn-out period with contractual protection against the buyer reducing it.

What this deal shows

• An earn-out is only worth what the agreement does to protect it; the restrictions on the buyer matter more than the formula.
• Regulated sales run on the regulator's timetable, and the conditions should say what happens if approval is slow.
• A seller does not need a large firm to negotiate with one, but does need a solicitor who has seen the long-form documents before.