More practices are coming onto the market than usual in today’s topsy-turvy market. But don’t get too excited, the marketplace is still lopsided in favor of sellers.
Still, for hungry advisors looking to expand through an acquisition, this is a good time to put your best foot forward, and here’s how to do so.
1. Understand the sellers’ psychology.
Many sellers prefer to remain coy about their intentions, because they feel that tipping their hand may reduce their leverage in negotiations.
Michael Wunderli, a managing director of Echelon Partners, says that even when sellers call investment banking firms like Echelon, they’ll often obscure their purpose by saying that they’d like to discuss their “strategic options.”
Buyers need to assess the game plan of sellers. It’s worth asking if they are “sell and retire” or “sell and stay” sellers, according to Wunderli.
Those who want to sell and retire want to find a suitable home for their clients and employees. They’re also typically looking for the best offer with the biggest upfront deal and the most favorable terms.
Sellers who want to sell and stay may be especially interested in the buying firm’s platform and how it can help them grow their business. For example, will they have additional client offerings like securities-based lending or access to alternative investments?
Also, their longer time horizon might make equity an attractive deal component.
2. Show you can transition your business.
All sellers need to be assured that a buyer can successfully manage a transition and grow the business. This is a one-time event for most sellers, and they are understandably anxious.
Be prepared to explain how you will be able to transition and onboard his clients properly, says David Grau, founder and CEO of Succession Resource Group. “‘We’ll figure it out together’ is the wrong answer,” adds Grau.
A buyer will need to demonstrate that they have the resources to simultaneously conduct their normal business and onboard the seller’s clients.
This will likely require additional staff with deep transition experience. Operational and technological capabilities must be up to snuff as well.
Accounts will need to be repapered and converted into the new firm’s systems. Buyers will need to show they understand and can overcome any potential compliance roadblocks, too.