Seven Ways Buyers Can Stand Out
In a seller’s market, it pays to separate yourself from the crowd.
More practices are coming onto the market than usual intoday’s topsy-turvy market. For hungry advisors looking toexpand through an acquisition, this is a good time to put yourbest foot forward, and here’s how to do so:
1. Understand sellers’ psychology: Many sellers prefer toremain coy about their intentions, because they feel that tipping their hand may reduce their leverage in negotiations.
Michael Wunderli, a managing director of Echelon Partners,
says that even when sellers call investment banking firms like
Echelon, they’ll often obscure their purpose by saying that
they’d like to discuss their “strategic options.”
Buyers need to assess the game plan of sellers. It’s worth
asking if they are “sell and retire” or “sell and stay” sellers,
according to Wunderli.
Those who want to sell and retire want to find a suitablehome for their clients and employees. They’re also typicallylooking for the best offer with the biggest upfront deal andthe most favorable terms.
Sellers who want to sell and stay may be especially interested in the buying firm’s platform and how it can help themgrow their business. For example, will they have additionalclient offerings like securities-based lending or access toalternative investments? Also, their longer time horizon mightmake equity an attractive deal component.
2. Show you can transition their business: All sellers needto be assured that a buyer can successfully manage a transition and grow the business. This is a one-time event for mostsellers, and they are understandably anxious.
Be prepared to explain how you will be able to transitionand onboard his clients properly, says David Grau Jr., founderand CEO of Succession Resource Group. “‘We’ll figure it outtogether’ is the wrong answer,” adds Grau.
A buyer will need to demonstrate that they have theresources to simultaneously conduct their normal businessand onboard the seller’s clients.
This will likely require additional staff with deep transitionexperience. Operational and technological capabilities mustbe up to snuff as well.
Accounts will need to be repapered and converted intothe new firm’s systems. Buyers will need to show theyunderstand and can overcome any potential complianceroadblocks, too.
3. Get the deal’s financing taken care of early: Based on
a firm’s financials, bankers often specify the type of transac-
tion that they are likely to finance, says Wunderli. Sometimes,
Advisors who are getting financing from a partner or out-
side entity should similarly understand how much they’ll be
able to borrow and the nuances of how the process works.
What kinds of transactions has the advisor or their broker
dealer successfully closed before?
4. Have a sense of urgency and commitment: Advisorsshould be expeditious in responding to any seller’s requestsfor information and meetings.
Don’t undermine your case by taking too long to schedulefollow-up calls, for instance. Your behavior must signal thatyou regard the potential acquisition as the highest priority.
5. Respect the seller: Often an advisor is trying to acquirea practice that’s much smaller than his or own. This meanssome prospective buyers monopolize meetings, recountingthe greatness of their firm and giving the seller’s observationsshort shrift, according to Grau.
Is that how an advisor would treat a $50 million prospector client? “Advisors need to check their egos at the door.They should use the skills that they already have to listen andask insightful questions,” explains Grau.
6. What’s your continuity plan? Multi-generational advisorteams who can appeal to clients of all ages — and who havea built-in succession plan — have an advantage in practiceacquisition, says Grau. An energized younger advisor can alsohelp an acquired practice grow.
In a seller’s market, sellers have their pick of the litter, soit’s important to remove any potential disqualifiers. Sellersknow that no matter what, their deal will get done.
If you’re a solo practitioner, it’s imperative to have a continuity plan in place. This allows sellers to know that their clients will be cared for and that extra payments (or “earnouts”)to sellers will be paid in the event something goes wrong.
7. Be likeable and focus on your firm’s special touch: Well-financed serial acquirers are scooping up a larger percentageof industry practices. They are tough to compete against,since they have deep pockets and boast an enviable trackrecord of successfully completed deals, says Wunderli.
In this context, smaller buyers should aim to forge deeperrelationships with sellers and stress the personal service theycan provide to sellers and clients alike. — Mark Elzweig
To reach the head of Mark Elzweig Company, an executive recruitingfirm based in New York, write to firstname.lastname@example.org.