Published on Wealth Management | Authored by Allen Darby
In 2024, I wrote an article about the pitfalls of using a financial auction in the wealth management industry to match a firm wishing to sell with a prospective acquirer. When it was published, I anticipated a positive reception. But the volume of passionate replies cheering the article wasn't something I hadn't expected. Apparently, I hit a nerve.
Financial auctions are flawed. The process of sell-side advisors basing their selection criteria solely on an initial offer from buyers to determine who will ultimately acquire their client's business is fundamentally the wrong approach. By focusing exclusively on financial terms, these auctions ignore the importance of aligning the values, vision, seller autonomy, and a host of other data points critical to the ideals of both parties. Financial auctions neglect essential data that quantifies the odds of long-term success of the transaction. More importantly, financial auctions overlook the most critical aspect of a successful deal, cited by buyers and sellers alike: cultural fit.
It makes better sense that when two entities consider a merger, they should consider more than just the financial terms. Instead, both parties should gauge the likelihood of satisfaction after the acquisition. This raises the question: why do sell-side advisors follow this approach?
The answer is straightforward. The sell-side advisors either don't have meaningful buyer data, or they do, and they simply don't care about it. The former is typically true, Sell-side advisors don't know much about the buyers and are therefore incapable of identifying the right buyer using any metric other than the financial auction based offer.
Buyer data is historically and notoriously difficult to obtain, taking potentially thousands of hours to capture and organize. It has therefore also been overlooked, or even dismissed, as a consideration during the evaluation process. That is, until now.
In 2025, advisors will be able to perform in-depth searches of buyer models at their own pace and identify buyers who align with their business realities, deal needs and objectives, partnership preferences, and autonomy profile. Therefore, sellers can invite to the table only buyers who are a potential fit for their business. Reducing the number of buyers in the initial discussions creates more time with each potential buyer to cover the important aspects of cultural fit and better ensure the prospects of long-term deal success.
Buyers are increasingly prioritizing deals coming from the most reputable sell-side advisers. Buyers value being shown opportunities that are actually a fit based on a host of quantitative qualifications, rather than the status quo to blast out seller's information to all buyers in the database and let them determine if it's a fit or not.
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