The amount of merger and acquisition activity going on in the independent advisory industry is more than I can ever remember. The reason behind it seems to be several major industry changes occurring at the same time.

The driving forces behind this “perfect storm” seem to be the tail end of the baby boom generation of firm owners reaching retirement (or scaling back) age, combined with the industry-wide trend toward growing larger businesses.

Each of these forces can contain various motivations by buyers and sellers that can undermine the success of M&As. This is why I strongly recommend that before you enter into a merger or acquisition, you get very clear picture about why you want to do the deal — and why the other party wants to do it, too.

Firm owners may have many reasons why they want to sell or merge their firms: from simply wanting to retire; to the fact that their business has gotten too large for them to manage; to simply wanting to be part of a bigger community of people; to the realization that that their clients would be better served by a larger firm.

Buyers also have their own set of motivations, including: the desire to grow quickly, a need for experienced advisors, or a proven rainmaker; quickly increasing the value of their business; to get into a new market; or simply wanting to extend their service model to more clients.

And it’s because these goals can vary so widely, that it’s so difficult to make sure both the buying owner and the selling owner are on the same page; complementing, rather than undermining, each other.

More Considerations

I’ve seen many instances in which differing expectations by buyers and sellers, or both merger parties, led to future difficulties.

For example, in many deals firm owners see selling or merging their business as the first step toward cutting back on working, with the goal being full retirement in the near future. However, the buying owner may see the addition of a senior advisor as the reason for the deal. This means somebody isn’t going to get what they’d hoped for.

Another common disconnect occurs when the selling owner wants to become part of a larger firm — but wants to continue working with clients using their old service model. Yes, there may be some good reasons for doing this, including a continuity of service for the clients they bring with them. Yet, multiple client service models can create confusion, and reduce the efficiency of the new firm.

Even though service model issues often are the biggest sticking point in M&A deals (rather than money or valuation), these situations can usually be worked out to the satisfaction of both parties. But it’s much easier to reach that place when you can recognize the problem before you do the deal, and therefore work out the solution on the front end rather than the back end.

The bottom line is that in most cases, the key to successful M&As is that both sides are clear and open about their goals.

Then by determining the compatibility of these two sets of goals, you can weed out M&A partners with a low probability of success, and identify partners that are compatible with you and your firm.