TRANSITION TALK

ARE YOU CONSIDERING THESE IMPORTANT STAKEHOLDERS IN YOUR TRANSACTION?

Finding the right transaction partner, and executing a potentially complicated and emotional transition, can attract most of the consideration in an M&A deal. It’s important to also look beyond the immediate stakeholders–you, your ownership team, and your transition partners–to a few other groups who will be greatly impacted by the change: your family, your team, and your clients.

The financial services industry is a personable one. Professional networking and client prospecting depend on your charisma and ability to connect beyond surface pleasantries. But when it comes to selling your business, it’s important to keep your cards close to your chest.

It’s very easy to get excited about the prospect of transitioning your business and moving forward in life–especially, when you’re talking with a colleague you’ve known for years. However, the excitement can cloud your ability to think through details and maintain a healthy level of confidentiality. It’s important to avoid casual negotiations and hashing out deals without proper documentation.

These casual conversations–also referred to as handshake agreements, or napkin negotiations–can lead to a lot of problems, including a loss of realized value. 

SHARKS IN THE WATER

The first issue that could arise from the casual mention that you’re even thinking about selling your business is the influx of phone calls or visits from people who want to buy. It’s like blood in the water. And while buyers flocking to you may seem like a boon, it can quickly become overwhelming. Without an efficient screening system, it becomes time consuming and difficult to sift through the phone calls to find serious and qualified candidates, let alone the person who fits your ideal criteria to take over your business. You also make yourself vulnerable to predatory buyers.

Mergers & Acquisitions – everyone’s favorite topic. Understandably so when one of the fastest ways to grow is to acquire and as such, add exponentially more clients (and assets) to your business in one fell swoop.

But what about mergers? Mergers are often lumped in with conversations and statistics about acquisitions, but their role and effect on an advisor’s future is much different than an outright sale or purchase. In our book, “Buying, Selling, and Valuing Practices – The M&A Guide,” FP Transitions’ president, David Grau Sr., JD, clarifies that mergers are, legally speaking, “the joining together of previously separate companies into a single entity.” Unlike an acquisition or sale, a merger means that some or all of the owners of the previously separate companies become owners of the post-merger entity. 

Here's what's different in the wealth management industry, the value of what is being traded are client relationships. Sometimes that gets lost in the entire equation. What we're trying to do is take care of those clients and make sure that they have been transferred in the best way possible. So why does an M&A deal get in the way of that?

What most are trying to do instead is to maximize dollars or be the one that has the best advantage on a contract. What gets lost in that is the partnership that is needed between buyer and seller when this transaction is done. Unlike traditional M&A, buyer and seller need to leave the table, if not as friends, at least as good working partners. This is a place where you can totally win the battle and lose the war if they don't depart that way. And that's where we have a problem. 

Oftentimes it's the advocates themselves fighting for the best interest of their particular client. But those interests oftentimes get muddied with contract negotiations. Then who wins? We take a different approach.

Our approach is to act in the fairness of the transaction, helping both buyer and seller. Does that mean that we don't advocate for the seller? Not at all. We absolutely advocate for our seller clients and we help our buyer client as well. We help them reach the perfect deal by starting out with the best match possible. If we have the fit right, the rest of the transaction goes together.

We do something unique in that we mediate our deals and put them together with lawyer dealmakers. That's helpful because our lawyer dealmakers are able to talk to the other advocates in the transaction: seller, lawyer, buyer lawyer to help them understand what the overall objective is and to get to a better solution. 

Not only does this result in better deals, but important to both buyer and seller.

We close 80% of the transactions we embark on. So in the end, this is less expensive, less grueling, and people leave having understood that, the most important thing is the transfer of the client relationship. 

Whether you’re buying or selling a business, there are a few players that are “must-haves” on your transaction team: personal lawyer, CPA/Tax professional, representative of your IBD/Custodian, personal stakeholders, and a non-advocate, industry-experienced mediator. 

The role of each of these players is important to the overall success of your deal, however, the mediator can sometimes be overlooked–often to the disadvantage of your deal. So, why are they so important?

Even though it had been in the works for years, last month’s Schwab/Ameritrade merger left both organizations’ advisors wondering what it meant for them. The good news is that the transition has been seen as largely successful, with only some tech snafus which, let’s be honest, is to be expected when you’re talking about huge platform changes for millions of accounts. Adapting to change rarely happens overnight.

The decision to sell a financial services practice is a difficult one for any advisor to make. After a lifetime of work to build your business, and after years of earning your clients’ trust, how do you turn the job over to someone else? Will they work as hard as you have? Will they care as much as you do? Will they always put your clients’ interests first? When selling your practice, you get just one chance to do it right. The following case study provides some unique insights into the process and illustrates the opportunities, and the mistakes, that many first time sellers make: