In today’s ultra-competitive landscape for acquiring wealth management practices, senior sellers should consider several factors to ensure that they are receiving what they deserve for the enterprise that was built over 20 to 40 years.
There’s been much education around creating a practice that commands higher valuations, such as advisory fees, multi-generational planning, beneficiary planning etc. But what other factors should sellers be cognizant of as they make one of the most significant financial decisions of their career?
In any marketplace, competition is a good thing. But savvy buyers need to ensure that they are capturing a purchase price that is at current market multiples.
Senior buyers need not exclude junior succession advisors from their buyer search process, but they should certainly execute a well defined outside- buyer search procedure. There are several wealth management industry specific M&A consultants that are well versed in conducting a thorough search for the appropriate buyer.
In the event that the seller still wishes to sell to his or her predetermined successor after a search process and negotiation, buyer and seller can proceed to closing with comfort that a fair market price was cultivated from competing offers.
The amount of liquidity in any market causes all boats to rise or fall. As a result of the introduction of bank financing, we already have seen multiples increase.
Consider: Seller-only financing is akin to selling your house with a contract for deed, whereas utilizing bank financing is more analogous to purchasing a home with a 30-year term mortgage. Clearly the latter allows buyers to afford a much larger purchase price.
Today’s sellers need to confirm that their prospective buyers have access to bank financing. Access to bank financing is driven not only by creditworthiness, but also preparedness to purchase and scale both practices.