The question inevitably comes up in most all our engagements. The selling firm is interested to know what would make them the most attractive to a potential buyer. Keep in mind that firms growing inorganically have made the decision to invest money into other businesses, and thus it is an asset they are buying in which they hope to receive a return on that asset. This may seem impersonal and infer they don’t care about the people and the clients etc., however that is simply not the case. They do care deeply about the people on the team and want to make sure it’s a great fit for both you and them. But the reality is they need to see the assets they invest in perform, and that performance hinges on one thing.
Organic Growth.
There are many factors that go what makes you appealing, but in our experience, organic growth is the single largest item that gets your future partners, the buyers of your practice excited.
Of course, they want to know you are aligned with their firm’s culture, and most importantly that you’re not going to be a disruptor (i.e., a jerk), but beyond that they want to believe the asset being acquired is going to grow over time. That is where the bulk of their ROI is going to come from. If the asset doesn’t grow, it becomes dilutive to other shareholders (assuming equity was used in the currency stack for consideration).
Showing a history of growth
Many firms seeking a partnership via acquisition will articulate a desire to grow, however much fewer can show a track record for growth. When you remove the market performance from the calculation (and they will remove it), how has your year over year net new assets grown? I would estimate that most firms 5 yr. avg NNA growth is less than 5%. When we encounter firms who have grown faster than that, they stand out. If you don’t have a track record of growth, you need to be able to explain that or it may impair your attractiveness.
Articulating a desire to grow
It’s interesting to see many firms who tell me they want to grow, will in the next sentence state how they don’t want to be “forced to grow”. When saying they don’t wish to be forced to grow, they usually are inferring that growth will equate to working more hours or sacrificing the quality of the service they provide clients. This is NOT what the acquirer means when saying they want you to grow. They usually mean growth in their world, which would typically come by a combination of
- Creating capacity in your local office by removing functions that frankly should not be borne by client facing advisors and their team.
- Surrounding you with additional support resources and,
- Implementing any number of niche organic growth programs/ initiatives.
They don’t mean asking you to work 80 hours a week or lower the quality of planning, advice giving you provide. In fact, I would argue that for most good buyers, their model will not only create excess capacity, but the added resources and expertise will enhance the service you provide your clients. The last thing they want to see is the client experience deteriorate.
If you truly are seeking to transact and spend more time on the golf course, or vacationing in Europe that’s fine, please tell this to your new partner. But just know that in doing so, you are telling them that any growth to be had in this office will have to be led by someone else, and thus you are immediately making yourself less attractive. It doesn’t mean they won’t move forward with the deal, but I would not anticipate receiving a premium price for the business.
Allen Darby is CEO of Alaris Acquisitions, a mergers and acquisitions consulting company for the wealth management industry. Contact him at allen.darby@alarisacquisitions or by telephone: 704-756-7160. Book time on Allen's calendar here.