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Published on Citywire on March 6, 2025 | Authored by Allen Darby
A sophisticated RIA buyer recently shared an experience he had with a well-known M&A advisory firm’s auction process. After signing a non-disclosure agreement to join the process, he described the information he received on the seller as ‘a little more than an email with a questionnaire attached requiring 13 pages of responses, followed by yet another list of questions requiring hours of work from his team.’ Despite requesting all that time and effort from the bidder, the sell-side advisor still hadn’t disclosed the identity of the seller, let alone offered time to meet them.
But here’s the twist: the prospective bidder already knew the seller personally. So, while he followed the M&A advisor’s formal process, he was also speaking directly with the seller, gaining insight into what was being provided by the M&A advisor. To his surprise — and frustration — he discovered that all the seller saw was a spreadsheet listing about 40 potential buyers, along with a few small points and the buyers’ financial offers. None of the thoughtful, detailed information he and his team had provided had made it to the seller. There was zero interaction before he was notified he hadn’t advanced to the next round. The buyer had been eliminated from the process.
The irony is the buyer and seller both felt there was strong potential for a great fit. But they were stymied by the auction process. Anecdotally, like many buyers, he admitted that he likely would have bid much higher had he been allowed to engage deeply with the seller and gain real cultural conviction.
This is a typical example of the financial auction — the wealth management industry’s prevailing M&A process. The underlying philosophy here essentially boils down to: ‘if we just invite enough buyers to the table, they’ll blindly bid against each other and force a maximum price out of one unlucky winner.’
The Big Questions
- Do auctions really produce the highest offer?
- Does the highest initial offer equate to the best outcome for the seller?
Historically, studies (like this one from researchers at Purdue University and the University of Arkansas) suggest that auctions can extract a higher premium than a one-on-one negotiated sale. But take note: the comparison is always one-on-one vs. multi-buyer auction. No alternative method is ever considered.
But let’s address the second question: Does the highest offer equal the best deal for the seller?
That depends entirely on how you define the best deal. M&A advisors running auctions (which, let’s be real, is nearly all of them, even those who claim otherwise) often define the best deal as the biggest check. And why wouldn’t they? Their compensation isn’t tied to how happy you are post-acquisition. They don’t get paid based on your team’s satisfaction, your client retention or the long-term growth of your equity stake. Their sole focus is the highest price at closing. That’s exactly what they optimize for.
If you define the best deal purely as the highest initial payout, an auction might be the right approach. But if you believe the best deal is a balance of cultural fit, financial offer, post-acquisition quality of life and long-term economic incentives, then the traditional auction process falls woefully short. You should also know that buyers hate financial auctions. They don’t mind competition, but they don’t like how the process is currently managed. As one prominent national acquirer put it: ‘The M&A advisor a seller hires is now a data point for us. We simply refuse to work with some of them.’
Where are we now?
In a few recent studies on post-acquisition happiness, including this one from PricewaterhouseCoopers, roughly half of sellers later reported they wouldn’t do it again. The statistics shock people. Some use them to argue that M&A doesn’t work. But I’m surprised the number isn’t even higher. The dissatisfaction is exactly what you’d expect when your primary criteria for choosing a partner is how much they’ll pay. Imagine if most people selected their spouse based solely on their W-2. What do you think the divorce rate would be?
A better approach
I’m not advocating for one-on-one negotiations over auctions. I propose something different: a curated cultural competition.
Imagine running a competitive process to which you invite only a select few who are a strong strategic and cultural fit for your firm. This approach eliminates the need to invite every buyer with a checkbook — many of whom have no real business being there because they don’t offer what you are seeking — and instead brings in only the kind of buyers who are a fit for you, and you for them.
I have seen firsthand that buyers who are deeply rooted in cultural conviction are far more aggressive in price and terms than when they are being asked to make an offer with practically no interaction with the seller. It’s just common sense.
Not all offers are what they seem
I’ve written about this before, but it bears repeating: most Ebitda multiples are highly misleading. Sell-side advisors frequently promote flashy ‘headline numbers’ or ‘all-in offers’ that may look impressive on paper but rarely represent the true economic reality of the deal. More crucial than the multiple itself is understanding how Ebitda is calculated; an 8x Ebitda offer can often be worth significantly more than a 10x offer, depending on the structure. And that’s before even considering deal terms, which are rarely discussed but can make all the difference in what a seller actually takes home.
‘All-in potential offers’ often combine a lower base price with a massive earnout or unrealistic performance hurdles. Sure, they make for great bragging at the country club, but they don’t translate to real, bankable value.
Why Don’t Sell-Side Advisors Change?
If this alternative approach makes so much sense, why don’t sell-side advisors do it?
Simply, they can’t. Presently, they don’t possess the buyer data.
To structure a process around strategic and cultural alignment, they’d need deep insight into buyers beyond just their typical deal terms. They’d need to understand:
- The buyer’s leadership and history
- Their fee model and market positioning
- Their client experience and investment philosophy
- Their expectations for integration and change from the seller
- Their track record on post-acquisition success
- Their approach to growing acquired businesses
- Their tech stack and approach to improving the advisor experience
Has the sell-side advisor ever visited the buyer’s office? Met their leadership team? Seen firsthand how they operate? Do they truly understand the buyer’s philosophy, culture and long-term vision?
Most often, the answer is no. Most M&A advisors don’t have this insight because they’ve never bothered to get it. They don’t spend time building deep relationships with buyers or understanding what makes a great long-term fit. Instead, they default to the one tool they do have: a financial auction.
It’s time for a new playbook.
Allen Darby is the CEO of Alaris Acquisitions, a sell-side M&A advisory firm for wealth managers and RIAs.
Media Contact:
StreetCred PR
alaris@streetcredpr.com
