How Senior Advisors Can Get the Best Sales Prices

Sellers should execute a well-defined search procedure to get the most favorable terms from outside buyers. - In today’s ultra-competitive landscape for acquiring wealth management practices, senior sellers should consider several factors to ensure that they are receiving what they deserve for the enterprise that was built over 20 to 40 years.

There’s been much education around creating a practice that commands higher valuations, such as advisory fees, multi-generational planning, beneficiary planning etc. But what other factors should sellers be cognizant of as they make one of the most significant financial decisions of their career?

Buyer Optionality

In any marketplace, competition is a good thing.  But savvy buyers need to ensure that they are capturing a purchase price that is at current market multiples.

Senior buyers need not exclude junior succession advisors from their buyer search process, but they should certainly execute a well defined outside- buyer search procedure. There are several wealth management industry specific M&A consultants that are well versed in conducting a thorough search for the appropriate buyer.

In the event that the seller still wishes to sell to his or her predetermined successor after a search process and negotiation, buyer and seller can proceed to closing with comfort that a fair market price was cultivated from competing offers.

Bank Financing

The amount of liquidity in any market causes all boats to rise or fall.  As a result of the introduction of bank financing, we already have seen multiples increase.

Consider: Seller-only financing is akin to selling your house with a contract for deed, whereas utilizing bank financing is more analogous to purchasing a home with a 30-year term mortgage. Clearly the latter allows buyers to afford a much larger purchase price.

Today’s sellers need to confirm that their prospective buyers have access to bank financing. Access to bank financing is driven not only by creditworthiness, but also preparedness to purchase and scale both practices.

Bank underwriters will question whether the prospective buyer has the people, infrastructure and processes in place to manage both practices successfully.

Transaction Representation

We see many advisors attempting to complete a “for sale by owner” exit of their wealth management practice.  In other cases, selling advisors utilize an M&A consultant, which can be advantageous for several reasons.

First, an M&A consultant will ascertain an appropriate market price based on multiple factors without committing the buyer and seller to the valuation. Rather, a third-party valuation provides a starting point for buyer and seller to initiate negotiations around an appropriate purchase price.

Second, M&A consultants have multiple resources for searching for the most suitable buyer. Sellers often cite that finding the right buyer is all about a “cultural fit,” yet we find that many advisors can provide a culture that is accommodative to a seller’s needs in addition to an attractive purchase price.

Finally, buyers and sellers who enter the financing process without an M&A consultant are sometimes greeted with less enthusiasm from lenders. M&A consultants create organized deal structures that are eligible for bank financing.

Transactions lacking a consultant may require bankers to assist in deal structure and other M&A activities they do not have time to execute. Do not be surprised if bankers are unenthusiastic about your applicants if you approach them with a “for sale by owner” transaction.

The seller who implements the most sound business practices is likely to see higher multiples on a transaction than another seller. Successful sellers can command increased enterprise value by implementing these factors near closing, to fully appreciate a purchase price they have worked hard to enjoy at retirement.

Scott Wetzel, J.D., is founder and managing partner of SkyView Partners, a correspondent lender and investment bank focused exclusively on supporting independent financial advisor M&A transactions.

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