An Unsolicited Offer to Buy – Is It Time to Sell?

The market for wealth management firms has dramatically changed. 20 years ago, people didn’t see resale value in these businesses. When an advisor retired, they hoped they’d find someone who would agree to take over their book. As the industry matured, sales slowly started taking place. It wasn’t easy – there were no standards for valuation or deal terms, no strategies for client retention, few financing options, and concerns about liability.

These days, those issues have mostly been resolved, providing for a real marketplace and more competitive deal terms for businesses. It’s a seller’s market, and in our open marketplace sellers often field 75 or more inquiries for a listing. Practices are being purchased by synergistic partner firms that are aligned from principles, staff and client standpoint. There are many more options for an advisor than existed 20 years ago.

EXPLORING YOUR OPTIONS

Every firm I have talked with in the last year – both large and small -- has received inquiries and offers If your business plans do not include selling, you could file the offer away for the future in a file that may well include other such letters. On the other hand, maybe the offer sparks your interest to learn more about what options you have in the current marketplace. Selling what you have built can be a good strategy when the time and circumstances are right.

If you have received an unsolicited inquiry or offer, the chances are strong that there are other possible buyers out there, and more to the point, better qualified buyers. Buyers could include large regional firms looking to gain market share, or local firms seeking to grow through acquisitions. There are so many types of business models; it behooves you to find the firm with the right fit. Allow yourself the time to explore your choices and understand how the M&A process works before jumping into a sale. 

Even if you aren’t planning to sell for several more years, that’s not necessarily a reason to completely dismiss a recent offer. Deals can take a while to put together. Also, remember the adage – “sell on the way up.” Don’t wait for the economy to start going badly, for client attrition to set in, or for a new and more onerous set of regulations to push you over the edge.

WORK WITH A PROFESSIONAL

The best way to achieve the greatest financial reward for what you have built while finding the best fit for your clients and staff, is to work with an M&A consultant. In fact, experienced buyers tell us that they prefer working with a seller using a skilled, non-advocate intermediary because it makes for a smoother, more professional – even more predictable – process and outcome.

You will only sell your business once, which means it is very difficult to master the process and all the skills necessary to realize fair market value while shepherding your clients into capable hands. Most buyers, however, have done this many times before. As a potential seller, you need your interest to be protected so that you can participate on a level playing field. Also, consider that calls, meetings, and due diligence requests can consume a great deal of time that you could otherwise be spending on your business and clients. Having a trusted advocate through the process will save you time and money.

THINGS TO CONSIDER

When or if the time comes to entertain offers to buy your practice, consider these key questions:

• Does the offer align with your most recent market-based valuation?
• Does it make sense to compare this to other opportunities in the marketplace?
• Could bank financing be used to improve the offer and reduce your risk?
• What are the tax implications of the deal?
• Will your advisors and office staff be part of the deal?
• Is this the best cultural fit for your clients?
• Does the buyer share your investment philosophy, fee schedule, and client communication style?
• Do you know the partners and history of the purchasing firm? What type of buyer are they?
• Has the buyer purchased another practice before, or is this their first acquisition?
• Will you have to change broker dealers?
• Will you be selling the entire business or book? Or are you considering a partial sale?
• Would you consider a merger or a “sell and stay” instead of an outright sale? 

NEXT STEPS

After an initial discussion, you may decide it’s not the deal for you, or not the right time. Either way, this can still be a valuable exercise. Talking with your M&A consultant and with buyers will provide you with  insight into what options are available to you in your region, and with your business model. It can also help you understand what you need to work on to help shape your exit or growth plans–or both. If now is the right time, you’ll want to start a conversation with the prospective buyer(s) that covers some of the topics above. The next step after that is signing non-disclosure agreements and starting the due diligence process.

Remember that the right buyer isn’t always, or even usually, the highest bidder or the first through the door. Fit is a vital consideration. The right buyer will be the one who provides the best cultural match to ensure a well-ordered transition and a solid future for you, your staff and your clients.