Mergers and acquisitions in the financial advice space, particularly succession planning deals, include costs that buyers have come to accept as the nature of the beast. There is, of course, the purchase price, along with the interest rate.
Often, though, buyers also pay additional costs, including those related to consultants to guide them through the process, fees for attorneys who review contracts, as well as digital matchmaking tools to line up deals. Yet each of these services, which are typically marketed as essential and value-additive for advisors, can come with hidden M&A costs for the unprepared.
So-Called Experts
Advisor-focused M&A consultants who are true experts in the field, with years of experience shepherding successful deals for happy buyers and sellers, are worth their weight in gold. They are also as rare as a goldmine.
Many independent broker-dealers and boutique consultancies offer advisors business coaching programs that steer advisors toward professionals who lack direct experience in forging successful advisor M&A deals. Advisors also may experience sticker shock when they find themselves paying a host of unanticipated extras beyond the initial generalist consulting package to advance through the process.
For instance, M&A consultants typically charge a minimum retainer and often also charge a percentage of the deal valuation. If they identify the deal financing, some consultants add a charge on top of loan origination fees. Furthermore, consultants often provide these M&A services by tapping outside vendors that they bring in for the advisor.
To be clear, vendors and extra charges are not unusual for true M&A consulting experts. In that case, the advisor pays fees on valuation expertise, deal flow identification, financing origination and underwriting fees to a real expert who earns their money with better access and genuine M&A experience.
Therefore, make sure you know who the third-party vendors are, the costs associated with them, whether the consultant is adding markups, and if so, how much. Based on that discovery, if you're going to pay third-party vendors and markups to a ringmaster, consider going to a real expert who does this every day instead of a generalist who dips their beak into M&A consulting.
Generic Attorneys
This category of hidden costs is really the advisor's fault. It revolves around gaps and oversights that occur when hapless buyers use generic attorneys to handle legally binding agreements with sellers. This tends to stem from the buyer's mistaken belief that he or she knows enough about the wealth management M&A process to forgo industry-specific guidance. A wide range of problems can ensue without drafting detailed and well-planned agreements before the deal closes.
