Written by: Matt Regan | Wealthcare
Too often in our industry we evaluate the purchase and sale of advisory practices through a zero-sum lens. When RIA Firm A sold to Investment Bank B, A was the winner because B lost many of the legacy advisors and therefore overpaid for the property.
What would it take to create an M&A model that is focused on a win/win, rather than that zero-sum approach?
Certainly, aligning incentives within the deal terms and ensuring that protections exist for buyers and sellers in the case of declining markets and events beyond the control of the seller go a long way towards mitigating an imbalanced outcome, but looking further into culture, branding and the preservation of spirit of the selling advisory practice can be important as well.
Many serial acquirers of advisory practices have established a templated approach to integration after the purchase is completed. Because they are acquiring businesses at an enormous pace and scale, it is critical for these firms to focus on synergies and run a playbook that is repeatable and efficient. That makes considerable sense and solves a number of issues on the buyer’s side of the ledger. On the seller’s side, while the structure may be chafing for the advisors who remain, the size of the check received by the owners of the selling firm can cover over some of the uncomfortable cracks that are associated with this templated and often confining approach.
The playbook for these acquisitions at scale may look like this:
Step 1: Change the name on the front door, repaper the accounts.
Step 2: Swap out the portfolio management and recordkeeping system for the preferred vendor. Switch the remainder of the tech stack to the enterprise brand in order to maximize pricing power with the vendors.
Step 3: Identify synergies and make the staff cuts accordingly.
Step 4: Focus on sales and marketing in order to meet the aggressive growth goals needed to justify the multiple.
We believe that there is a better way to approach M&A that accomplishes the appropriate level of integration and efficiency without sacrificing the autonomy and entrepreneurial spirit that the selling advisor used to create a valuable enterprise. This playbook would look a bit different:
Step 1: Evaluate whether the existing brand has local value and decide what makes sense moving forward. Sometimes an “Intel Inside” approach can preserve the value of a brand and simultaneously indicate a connection to the acquirer.
Step 2: Execute a plan to take advantage of common systems and processes, identify strengths and the unique advantages of the selling firm’s approach and plot a course to create an organization that leverages the best of both sides.
Step 3: Rather than focus on synergies and cost reduction, focus on removing non-revenue generating activities from the acquired firm’s day to day. Things like billing, compliance, operations, marketing, trading, and portfolio management, should be taken off the plate of the selling advisors.
Step 4: Focus business development energies on maximizing the unique approach of the selling advisor. Whether it is a niche, a geography or a particular approach, work to accentuate and hypercharge the unique talents that made that firm such a valuable property in the first place.
Make no mistake, the key to successful M&A is based upon identifying redundancies and leveraging scale while creating an efficiently run larger enterprise. We aren’t advocating for moving away from that as a goal. We do, however, believe that a more flexible and nuanced approach is in order and works best to preserve and maximize the unique value of the buyer and the seller going forward. In this way, a win/win can be achieved.
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