Selling Your RIA: Building your Deal Team

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Selling Your RIA – Part 2: Building your Deal Team

With the year after year record number of transactions involving the sale of Registered Investment Advisors (“RIA”) and the continuing consolidation of the industry, we continue our series “Selling Your RIA” with a look at building your deal team.

The Industry

RIA’s are a hot commodity and in great demand. With approximately 165 RIA M&A transactions through the third quarter 2021, nine months of 2021 has already surpassed 2020’s 159 transactions and the RIA M&A activity (by # of transactions) has increased in each of the last eight years (Devoe & Company).

Not only has the number of transactions increased in recent years but the makeup of the buyers has changed.  No longer is it the big wire houses acquiring the RIA “book” or transactions simply the mergers of RIAs to “bolt-on” additional business, what we now have are firms that are “Active Acquirers”, with sufficient deal capital, quality client service offerings, modern infrastructure, efficient operations, tested integration plans and yes attractive valuations to help attract and close deals with sellers. These firms are in the business (or it’s a large part of their business) of acquiring RIAs. These Active Acquirers are both public and private companies and are efficiently built to acquire RIAs and merge their practices so that the client and advisors are comfortable with the transaction and new combined firm.  The Active Acquirer does multiple transactions a year, have a M&A and transition team in place to guide the entire process from identifying target firms, preliminary offer, due diligence, negotiations, final offer, closing, and facilitate the integration of clients, personnel, compliance, operations, finance, and all aspects of the transition.

These Active Acquirers are built to move through and execute these transactions, but are you?

One of the key points in the sales process that we identified in part 1 of this series was building your deal team, we will explore that key area a little deeper below.

Deal Team

Going “to the market” and selling your firm is a time-consuming exercise with many fundamental decision, technical decisions, starts and stops, stress, frustration, excitement and satisfying experiences along the way.  Establishing your “deal team” and a quarterback is essential.  A well organized, thoughtful, passionate and experiences team can help plan, guide, service, communicate and execute the sale.

Your deal team is not only an internal group that needs to communicate, work well together, and deliver inside your firm but also is the buyers first intense interaction with your firm and shows them how you work, how you communicate, how organized you are, your attention to detail and your ability to lead and make decisions.   Buyers can learn a lot about your firm and management based on their interaction with your deal team.

The key “positions” on your deal team include:

  • Point Person/ “Quarterback”- Most likely someone from inside the organization. Does someone on your team (Founder, CFO, President, etc.) have the ability and capacity to quarterback the process. The Quarterback will be the liaison and gather information for the buyer, lawyers, accountants, bankers, vendors, and across all departments (finance, HR, compliance, technology, etc.).  A strong grip on the flow of communications, steps in the process and continuous review of deal documentation and changes will be a requirement of the QB role.  Your Quarterback needs to understand at all times, where you are in the sales/negotiation process, the open items, the timeline, and the roles of all the others on your team.  The QB needs to be in constant contact with his/her counterpart on the buy side and be able to keep the sales process moving and closing open points.  You can expect the demands on the QB’s time will be substantial.  If a person or persons in the firm cannot fully participate in this role, consider an outside consultant.
  • In House Capacity– Determine who in ownership/management will be involved in the negotiations, decision making, document review and closing.  The process will involve working with the QB, and support as needed, meeting with and information gathering for the buyer, lawyers, accountants, bankers, vendors, departments (finance, HR, compliance, technology, etc.).  Determine who “in-house” will participate in due diligence, financial /deal matters, valuation, and reciprocal due diligence.  A strong grip on the flow of communications, steps in the process and continuous review of deal documentation and changes will be a requirement of the QB role and those designated on the in-house team to participate in different stages or specific matters in the sales process.
  • Attorney– The right attorney is essential to getting a deal done. Be careful here the attorney or law firm your company may have used for years may not be the best match.  These deals move fast, and the pace of document changes and reviews become a nightly / one day turnaround affair.  Your attorney should be experienced and well-staffed for these types of deals.  Experience is helpful in deal structure, creativity, and fully understanding the buyer’s organizational structure, capital structure and your integration into it.  Legal cost is a factor and often the most significant transaction cost, the seller should understand the pricing, the “change order” process and the efficiency of staffing with the law firm you’re considering.
  • Investment Banker-Bankers can play an important role in helping ownership come to the sale decision. An experienced and well-staffed banker should know your market and your industry. The banker can help you determine a valuation range and introduce you to the market bringing appropriate potential buyers to you. The banker can help with review of your documentation and due diligence material in a way a buyer may review or proforma your financials and other data.  The Investment Banker can advise on “letters of intent” and deal term documents based on their experience, the market, and recent deals.  Engaging a Banker can be expensive and may not be needed for all deals, thought should go into the need and any value add considering deal size, in-house capability, access to buyers, and services provided by the law and accounting firms.
  • Accountant- Your accountant should review the Letters of Intent and deal terms to help you understand the value and risk of the deal as well as the tax treatment and after-tax valuation. A review of the structure of the deal and the advantages and disadvantages of that structure? Can the deal be changed in your after-tax favor? How so?  Accountants can also help you review the financials, organizational and capital structure of the buyer and prepare you for due diligence and help respond to any information request from the potential buyers.

As you start and move along in your sales process, you should continually monitor your deal team, are they working toward your goals? is the team responsive and proactive?  Is the team cost effective?  If the team is not working efficiently and in line with management expectations and goal orientated, changes (sometime subtle) may need to be made.

A talented, trusted, transparent and responsive deal team will make negotiations, due diligence, valuation, closing, and integration all move through the process in an efficient and informative way with no (or few) surprises.

Prepare Now

Prepare now, while the market is hot.  RIA owners should start to prepare for succession or a sale.  While “testing the market” on your valuation may seem like a first step, it is not.  The first step is to establish in house goals and then prepare for how you will present your firm to the market, to maximize your value and highlight what “makes you unique” to potential buyers.

Please see our related blog post from this series!

Selling Your RIA

Part 1: Sales Process and Pre-Sale Planning
Part 3: Due Diligence and Reciprocal Due Diligence
Part 4: Valuation and Hidden Value

Simply stated, how long will demand last?

Help is Available

We know you are busy advising clients, running and growing a business, if we can help be a seat at your table, roll up our sleeves and work with your management and staff to presale prepare please contact Four Leaf Business Consulting, see  “We will help you consider, prepare and analyze the sale of your business, working with and for you while you concentrate your efforts on servicing your clients. “