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An Advisor’s Guide to M&A: How To Avoid Buyer’s Remorse

Pay attention to the financial and personal aspects of the deal.

Anyone working in the advisory space hears a lot about mergers and acquisitions, or M&As, these days. Pointing to an aging advisor population, emerging competition from automated online platforms, so-called robos and cumbersome regulation—commentators are predicting a continued surge in mergers among advisors. So far, the data does seem to bear out this trend, as savvy advisors looking to expand their business are finding firm managers ready to exit the business.

But the marketplace is somewhat skewed: We’re seeing many more buyers than sellers out there. Since advisors looking to acquire a firm are facing more competitors and fewer options, they must pay extra attention to both the financial and interpersonal elements of a deal to ensure it comes to fruition and meets their long-term business goals.

Ensure Deal Terms Are Mutually Beneficial

Buyers must be careful when planning the financial terms of a possible merger to ensure they are absorbing an appropriate amount of risk. Bottom line, the buyer and the seller should be equally financially invested in the success of a deal. No matter how attractive a business’ performance and assets may seem in the preliminary stages of a deal, it’s often best to avoid paying 100 percent of the down payment all at once—this would place too much risk on you as the buyer, and provide outsized benefit to the seller. Instead, we generally recommend that buyers implement look-back provisions into the process of the transaction, since that creates clear procedures for determining over time whether the company is performing according to projections that were initially presented. If those projections aren’t being met, look-back provisions can enable the buyer to recoup some of the original purchase price. 

Pay Attention to Personal Details 

While the nitty-gritty financials are vital, buyers also need to seriously assess the personality compatibility between themselves and the seller. The process of integrating a new firm into your existing structure takes many months and hard work to get it right, so there has to be a strong level of comfort and respect among all parties involved. More often than not, we hear from advisors that clashing personalities, to an even greater extent than financial issues, are what ultimately doom a deal.

Of course, it’s impossible to foresee how two distinct personalities will mesh when you’re in the early stages of discussing an acquisition. However, ensuring your high-level goals align with those of your prospective partner will certainly increase the likelihood that your sights are set in the same direction, and can help to avoid more serious conflicts in the future. Be sure to ask the key questions—why is your prospective partner choosing to sell their business in the first place? Are they just looking to monetize their business and move on, or do they want to stay involved and active in its future growth? Clarifying whether their answers match your long-term vision for the firm will help confirm whether they are the right partner for you.   

Create a Strong Transition Plan

Just because you’re ready to close a deal doesn’t mean it’s a success yet. Integrating a newly acquired business requires more patience and commitment than most advisors anticipate. Before that last handshake, you should agree upon a clear plan for how you and a potential partner will transition the business once the deal closes. That plan should be as specific as possible, with a sequence of events tracking the entire process of the integration, including how you propose to implement any changes in roles, governance and decision-making processes. Plus, having a clear integration plan in place will make it easier to review the effectiveness of the transition a year or so down the line and see if any additional steps still need to be taken. 

Advisors in a position to buy another firm should take extra care with both the financial and interpersonal elements of a deal, being methodical and thoughtful from the very first expression of interest through the actual closing and beyond. This purposeful approach will allow buyers to ensure they make the right move.


Matt Matrisian is Senior Vice President, Strategic Initiatives at AssetMark, Inc.

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