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Window Closing for Majority Sellers Seeking to Hedge Election Results

Time is running out for RIAs to sell majority stakes and hedge against a Democratic sweep of the presidency and Congress on Nov. 3.

The window for RIA sellers to complete the majority sale of their business is rapidly coming to a close, according to industry insiders. 

Given Democratic Party presidential nominee and Vice President Joe Biden's stated intention to hike capital gains rates should he win the White House and the Democrats flip the Senate, sellers in search of a hedge need to have a deal signed by Friday, Oct. 23, because the standard timeframe to complete due diligence is 60 days.

Rush Benton, senior director of strategic growth at serial acquirer Captrust, told, “This is meaningful. Large sellers, which are the story of the moment, stand to lose a million dollars or more if there is a regime change.”

Peter Mallouk, president and CEO of Creative Planning, added “the window for all of us is closed given the due diligence process takes at least 60 days.”

Benton said Captrust has managed to close a deal in 30 days, but “that was really unusual, it normally takes longer to get everything done from start to finish."

Captrust sources most of its deals from long-time connections, shrinking the timeline, Benton said. But when a seller uses an investment banker, the deal can take as long as 12 months.

“The process of finding the right buyer usually takes a bit more time,” said Benton. “I’ve seen offerings where as many as 22 buyers are in the mix."

Meanwhile, the picture isn’t as dire for firms parting with minority stakes that are banking more heavily on their long-term upside potential.

Industry sources said minority stakes don’t need client consents so deals could get signed by Thanksgiving and still close before the new year.

According to Jason Carver, who makes M&A opportunities available to the majority-owned firms that make up Carson Group’s network, also said he is not seeing much urgency from either the partners or sellers interested in being rolled up by them.

“It’s about making the right decision and not rushing,” he said.

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