‘One Shot To Get It Right’ When Scrutinizing Potential Buyers

Julius Buchanan, Editor in Chief, Wealth Solutions Report

Herbers, Modern And Integrated Executives Provide Key Factors To Finding The Right Buyer

Recently we examined factors for such life-changing advisor business decisions as leaving a wirehouse and affiliating with new partners. An equally major step that many advisors take each year is finding a buyer for an M&A transaction.

While often this step allows an advisor to monetize the value of a lifetime of hard work and client service as they approach retirement, the transaction affects not only the advisors, but their families, clients and staff to such an extent that advisors consider many relevant factors beyond just dollar figures.

We reached out to industry executives to learn the key factors advisors, as sellers, must consider to find the right fit with an M&A partner.

The Right Deal

Angie Herbers, Founder & Managing Partner, Herbers & Company

Angie Herbers, the Founder and Managing Partner of Herbers & Company, cautions that sellers “have one shot to get it right.” According to her, the most common problem is advisory firms failing to examine the details about the buyers. “In the interview process, many sellers have lots of conversations about what the M&A firm can do for the seller. That’s important, but the first question should be ‘who are your buyers’ and ‘do you have exclusive buyers who get preferred treatment over other buyers?’”

Jason Gordo, Co-Founder and President of Modern Wealth Management, says that a seller must see where they fall in the sequence and history of a buyer’s acquisitions. “Considering the stage and structure of the deal is essential for evaluating the potential for collaboration and impact post-transaction, as well as determining if their primary goal is financial gain.”

Jason Gordo, Co-Founder & President, Modern Wealth Management

He adds that advisors should consider the type of remuneration, whether cash, debt, equity or a note payable. As an example, he points out that equity compensation is linked to the potential for liquidity events.

Gordo concludes, “Ultimately, does the buyer have a real plan, or just a lot of hope that the transaction works out in the end?”

Aligned Culture

Gordo also says that the advisor must understand the potential buyer’s organizational culture. “During a future partner dinner, would you look for a seat close to the leadership team or as far away as possible? Does the leadership team ask questions and listen to you to understand how you can work better together, or do they start by telling you why your business needs them and how you can’t possibly succeed without them?”

Andree Mohr, Chief Implementation Officer at Integrated Partners, states that cultural alignment is the most important aspect of a transaction, and must be identified early in the process because it will be key to unfolding discussions and negotiations. “Particularly in a time of market volatility, seeking cultural alignment is crucial to ensure a smooth transition.”

Aligned Perspectives

Andree Mohr, Chief Implementation Officer, Integrated Partners

Mohr also points to the importance of aligned perspectives “on growth and maintaining a joint focus on planning. Strategic alignment on broader topics like these can help prevent obstacles to progress once the two entities have merged.”

Gordo says that the seller and buyer must “have the same philosophy and approach to how clients are served and how services are delivered,” including in the areas of tax planning, investments, financial planning, insurance and estate planning, as well as serving the same client types.

Gordo adds, “It’s critical to evaluate your future partner’s investment management platform, ensuring they can provide enough breadth and depth of choice, as well as alignment on client fees and organic growth strategies.”

Clear Communication

As a final key factor for advisors to consider when searching for a fitting M&A partner, Mohr point out that open and honest communication is critical. “If the party selling the business fails to actively pose and address questions through effective communication, it should raise a significant red flag. Similarly, the acquiring firm should not proceed without addressing and ensuring this alignment or recognizing a commitment to achieving it from a potential partner.”

Julius Buchanan, Editor in Chief at Wealth Solutions Report, can be reached at jbuchanan@wealthsolutionsreport.com.

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