We’re coming off an incredible year from mergers and acquisitions yet again. In fact, we closed out 2022 as one of our greatest ever for FP Transitions, and the same goes for Live Oak Bank. We took a moment to reconnect with James Hughes, SVP of Advisory Lending for Live Oak Bank, to break down the key areas advisors should consider before they enter the 2023 mergers and acquisitions environment.
Topics: Acquisition, M&A, Business Value, Deal Structure, Financing, Bank Financing, Buying & Selling, State of the Market, Next Generation, Valuation & Appraisal, "Buying, Selling, and Valuing Financial Practices", Sell and Stay™, Trends
Acquiring a wealth management practice brings immediate growth and is an alternative to spending money and time on marketing to find new clients. That’s why there is currently an average 75-to-1 buyer-to-seller ratio. If you’re going to succeed in this arena, you need to stand out from that crowd. If you don’t have the cash on hand, one of the best steps you can take is to become prequalified for a conventional or Small Business Association (SBA) loan.
Twenty years ago, most acquisition deals consisted of a down payment of around 30% with the balance seller-financed through an earn-out arrangement. As fee-based practices became more prevalent, buyer demand increased. The combination of recurring revenue and increased demand pushed values higher and, in time, strengthened the underlying deal terms as well. Gradually we witnessed a shift to the use of performance-based promissory notes in place of earn-out arrangements. And, in the last seven years or so, the landscape changed yet again when the availability of bank financing entered the picture. This has afforded younger, smaller buying firms the opportunity to compete financially with larger, more established firms.
A place to start accessing this financing is to prequalify for a loan. A bank will review your finances and give you an estimate of how much they will lend to you. A bank’s prequalification tilts the acquisition playing field in your direction; you can knock out 90% of the competition. Sellers like the security prequalification brings to the transaction. In addition, you’ll be ready to move quickly if there’s a new opportunity or if a seller has a short time horizon.
Topics: Acquisition, Bank Financing
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Topics: Acquisition, Tip of the Week, Financing, Bank Financing