Advisors Cash In On M&A

By examining the types of succession plans advisors find most appealing, one finds an interesting trend. The objective of most RIAs with succession plans surveyed (27%) is to sell the practice to an existing partner, while 25% intend to sell their practices to an existing employee and 23% propose to close the firm and refer their clients to others. Only 11% intend to sell their practice to an identified third party. The takeaway here appears to be: advisors prefer to do business with those they both know and trust.

Sealing the deal

Another note of interest is how most of these mergers are finally actualized. According to our data, not many buyers make lump sum payments. Instead, the most common way to pay for a practice is via a payment plan. Eighty-eight percent of advisors who plan to sell their practice to an existing employee implement a payment plan and 69% do so when selling to an existing partner.

Some action steps

Regardless of your firm's size, if you are contemplating M&A activities–whether selling your practice or buying another–there are three things you should consider:

1. Benchmark yourself against your peers in the marketplace. Why? It will give you a better assessment of what your firm might be worth, as well as some ideas to enhance your firm's worth. Analyzing several firms in the marketplace can offer you such insight.

2. Consider how you want to be paid. If you want to be paid in a lump sum, selling to an employee is likely out of the question. Knowing your method of payment is an important succession plan factor and will drive many of your other decisions.

3. Plan ahead. No matter what your circumstances–merger or no–you should have a succession plan or exit strategy in place. If you plan on selling, create a game plan for determining your firm's worth, set a timeline for exiting, identify potential buyers and consider ways to enhance your business model to make it more attractive. Sellers with succession plans in place enjoy a smoother exit process.