Questions From New RIA Owners About M&A: Part 2


As we continue our survey of the top M&A questions we’ve heard from RIA owners, we’re moving beyond planning into experience, execution, and post-transaction.

Continuation of part 1.

  1. What is the optimal mix of considerations for an M&A deal?

In M&A terminology, «consideration» refers to any form of payment – usually cash, stocks, or a mixture of both. In practice, it is a balancing act to achieve a mix of prices and items that is acceptable to everyone involved, and as much art as science.

The mix of considerations of a particular business is influenced by the culture, motivation on the sales side, and the type of business.

  • Culture: Companies with similar business, customer care, and investment philosophies are typically more likely to negotiate and constructive compromises than companies with very different views on these priorities.
  • Sales-side motivation: If a founder is looking for a major liquidity event associated with a sale, a business that favors cash is likely to find approval. Again, negotiating when to pay is easier if the companies are culturally oriented.
  • Business type: Imagine an RIA working on a deal to position the next generation for leadership. By and large, it is expected that the current leadership will attempt to optimize the consideration for cash, while the successors, at least initially, will be more interested in minimizing the amount of money they need to spend or borrow.
  1. How many M&A deals has Dynasty completed?

Since its inception over 10 years ago, Dynasty has supported companies in its network in the execution of M&A transactions. Dynasty has hit a 2020 record and now has everything from creating transactions to signing and sealing. It has completed 18 transactions with more than $ 7 billion in assets under management – with more transactions in store.

  1. What should you look out for in the due diligence of an M&A prospect?

Again, the first is cultural affinity. Companies that are not on the same page when it comes to working with clients, treating employees with respect, reinvesting in talent, and sharing like-minded views on the investment philosophy are not built on solid foundations.

Likewise, a company run by a team of venerable and longstanding consultants can actually have older customers. If customers over 60 are predominant, the parties may have difficulty agreeing on the present value of the business due to natural customer churn.

Is the target company too heavily indebted or is it trying to squeeze every dollar, even if it can lead to inefficiency? Here, too, the parties’ assessment of their value can differ significantly.

  1. How are qualified leads created?

Recently, we have successfully generated qualified leads through several targeted digital marketing campaigns for customers. We leverage the unique value proposition and identity of our clients and our market for a specific target market where consultants and other RIAs may be interested in learning more. We also work with the usual suspects in the recruiting industry, which include a variety of third-party intermediaries, including business brokers, recruiters, and marketers.

As word of mouth spreads about our clients’ merger and acquisition success, RIAs reach out to us for advice on how to efficiently monetize their ownership.

  1. After graduation, how can I be sure that the transition and / or integration will go as planned?

For starters, it pays to be organized in terms of an achievable transition plan that makes sense from start to finish.

Should the acquired RIA function as an independent practice or should it be integrated? Where integration is the goal, is your investment team thrown in the cards? Are the acquirer’s investment activities a suitable substitute? Or will you go outside to get efficiency in your investment program that comes with your newly increased scale? The same applies to other in-house specialties, including technology and accounting platforms from third parties or in-house companies.

In all cases, a detailed transition plan agreed upon prior to closing the deal can help see your practice against the realities of a successful transition after M&A.

Harris Baltch is Head of M&A and Capital Strategies at Dynasty Financial Partners.

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