Podcast: How the COVID-19 Pandemic is Impacting Lending for RIA Mergers and Acquisitions

Aaron Hasler, a Managing Partner at SkyView Partners focusing on helping RIAs navigate the mergers and acquisition process explains how the COVID-19 pandemic is impacting the landscape for deals.

To listen to the episode simply click play on the audio stream below or listen and subscribe on your favorite podcast platform. You can find The Advisor Financing Forum on Apple PodcastsSpotify, and Stitcher.

Transcript

Mike:

Hey there, it's Mike Langford. Welcome to another episode of the Advisor Financing Forum, a weekly podcast presented by Skyview Partners. This week on the show I'm joined by Aaron Hasler, a managing partner at Skyview who focuses on helping firms and individual advisors navigate the mergers and acquisition process. The central theme of this episode is going to be the impact of the COVID-19 pandemic on the M&A landscape for RIAs and independent financial advisors.

            Aaron and I are going to discuss how the pandemic is affecting things like RIA evaluations, the approval process for borrowers, and how it may actually be a key driver of mergers and acquisitions activity for many advisors who are seeing new risks exposed in their business as it's currently constructed. As you'll hear in the early part of our conversation, Aaron and I jump right in on one of the pandemic's other seismic impacts for the business of all RIA and independent financial advisors and frankly, the rest of the business world. And that is the concept of working from home.

            Most of us are now connecting via Zoom and other video chat solutions, and as Aaron points out, it's actually been a bit of a silver lining for him and the team at Skyview, because they're able to interact with advisors on a much more personal level than they were pre-pandemic times. They're really liking that and thinking, maybe we can use that in the future as well. It's really been a positive lesson for all of us, I think.

            Okay, before we dive in, if you haven't done so already please do make sure you subscribe to the podcast on Apple Podcasts, Spotify, Stitcher, or Google, wherever you like to get your podcast jam on. If it's not there, let us know. We'll make sure it gets on that platform. And if you could, give the podcast some love. Give it a like, and make sure you share it with your network on your favorite social channels. Skyview is active on LinkedIn, Twitter, Facebook, Instagram, YouTube, wherever you like to be social you will find Skyview there as well.

            Lastly if you have a question or suggestion for the show, please do send it in to podcast@skyview.com. We'd love to hear from you. That's how we get topics for the show, and you get guests on the show you'd like to hear from. Send it in, okay? All right. Let's get to the conversation with Aaron Hasler.

            Well, Aaron, first of all I've been really looking forward to meeting you, because I've heard lots about you from Scott and from Katie. And I've seen your picture on the Skyview website, but this is our first time chatting, and in the pre-chat I think we're hitting it off pretty well, so welcome to the show, buddy.

Aaron:

Thanks so much. I know I'm the most handsome person in the office, so I'm sure it shows up on webinar here as well.

Mike:

I'm pretty sure factually this is correct. You might be the handsomest guy there. Now, Scott always pays me a compliment, says I'm handsome, but then relatively quickly he always mentions the coach that I have in the background here in my home office. Like, does your wife make you sleep there? He harasses me, busts my chops. Then he's really giving me a hard time, like what the heck's going on with these lights here in the back? It's like, well, I record video occasionally and I'm sitting at my desk, so those are lighting me.

            He gives me a hard time, so I'm sure he's busting your chops about your home setup.

Aaron:

Yes. Your office looks a lot more professional than my basement closet here, but this has been a great place to work, and I've ridden out the pandemic without too much trouble. I miss my team, I miss the office, but we're making it work.

Mike:

It is. I actually find it very inspirational to see the lengths that people are going to, to make sure they can get things done at home. Because many of us were just not prepared to be able to work from home all the time. I remember very early on in the pandemic, I watched a show on ESPN called Get Up. It's kind of like a Sports Center thing but it's a little more talky. One of the women is a cohost, her name is Laura Rutledge. When they came back and she was in her home, you could tell she was sitting in her closet.

            She's making millions of dollars a year. She lives in New York, she's on this big flashy ESPN show, but in no way-

Aaron:

She's trying to find the quietest place in the house.

Mike:

Yeah. She had just dragged some curtains around, and some stuff to just kind of close off the background. I just thought it was so funny. Oh, this poor woman, she's never envisioned having to work out of her closet. Like, I'm an ESPN person.

Aaron:

It is amazing. I will say, I was going to tell the office, Zoom is my best friend because without Zoom, this would have been a much harder thing, right? We kind of joke, this is the perfect time for a pandemic as far as technology is concerned, because we now have so much better Wi-Fi, so much better internet coverage. I use Zoom almost exclusively now. It's actually revolutionized the way I interact with clients.

            We work with clients all over the country, and I'd be sitting in the office doing a phone call with a client and trying to envision what they look like, or looking at their website. Now to be able to just meet people face to face on Zoom, it's created so much better connectivity with clients, and it's so much more fun. I just wish I'd figured this out years ago, but it'll be fun to get back in the office and get back to normal life but still be able to use Zoom and interact and see people.

Mike:

Yeah. I'm glad you brought that up, because we all have FaceTime on our phones, and it's like the least used app on my phone, right? I'm thinking to myself, why not? Because when I was a kid, I think I'm a tiny bit older than you, in my '40s. But there were these shows, you'd see these shows, character sci-fi shows or whatever, they'd be looking at their phone, or they'd be talking to somebody in their watch. I can't wait for that, and now it's here and I'm like, eh.

Aaron:

Right, and we never use it, right? Yeah.

Mike:

I use it on my computer, but that's it, yeah.

Aaron:

No, and I find when we've been able to connect with clients all over the country and compare people's haircuts, their COVID hair, their office setup. This has been a fairly entertaining last six months, which it's hard to believe it's been that long. But we've really enjoyed it, and I think that we're able to get as much work done and communicate as much around the country with clients. Kind of a crazy environment, I feel fortunate that we've been in a business that's been relatively minimal impact with the pandemic, and we've had a lot of fun kind of working around the challenges.

Mike:

That is great. Kind of not a day goes by that I don't realize how lucky I am, safe in here.

Aaron:

Right, yeah.

Mike:

Certain businesses lend themselves well to be able to work from home and do stuff, and not everybody is that lucky. Let's dive in a little bit to what you're doing there, and how you are helping those clients that you're firing up Zoom to interact with. Your focus at Skyview, I'm sure it's a lot of stuff because you're managing director there, managing partner, excuse me. But your focus is on M&A consulting for advisory practices, right? What are some of the key areas in the process where a leader of an RIA firm would seek out your guidance or need your guidance in the process?

Aaron:

It's been interesting, because I'm not sure I would have expected this when we started this company two and a half years ago. But the biggest thing that we're working with really revolves around, how does bank financing look at the RIA industry and RIA financing, and what do RIA owners need to do in terms of their deal structure and the way they communicate with that seller that pertains to bank financing?

            A lot of what we're doing is really educating on commercial financing 101. What does it mean to have a commercial loan out there? How is it different than the old way of doing things, which was seller financed notes or cash down payments? We spend a lot of time just educating them on commercial banking. Then how do you take a deal structure or a desire that a seller wants, and translate it into something that is usable for the bank financing?

            It's kind of a fun process to really sit down and understand, what's the total outcome here? What is the seller's objectives? What do they want for the price for the business? Then how do we make a deal structure that the bank likes to see, and really enhance what the buyer is offering that seller? That's what we're often doing, is saying, "Hey, you're offering this particular structure right now, but bank financing allows you to do so much more. You could offer this, this, or this," right?

            So it creates a lot of possibility, and we just spend a lot of time educating on the possibilities and the opportunities that you have with bank financing in the RIA space. That's a really exciting thing to be able to talk about every day. You're giving people good news, right? It's a nice thing to do.

Mike:

Yeah. It's interesting, too. I think in the early days of talking with Skyview, it was a little surprising to me that some of the fundamentals still needed to be covered. Like you mentioned, bank financing. In part because this space, RIAs have not had access to commercial loans for very long. Because that didn't exist, they had to do this other financing as you mentioned. But they also were just unfamiliar with it, right? They'd never had to prepare an application, look at their business as a banker would look at their business for evaluating risk and evaluating the ability to service a loan, and so forth.

            I imagine you do have to do quite a bit of handholding, if you will. Kind of like being a good guide for that process.

Aaron:

Yeah. What's interesting is, buyers typically are starting to become aware, right? We're getting our message out, we're communicating the opportunity for RIA financing. But sellers don't. Sellers typically have run a practice for a long time, they've had their way of doing things, and so what's interesting is we're actually finding that there's a lot of educational opportunity with the sellers. You can re-shift their expectations of how they're going to be compensated for their practice, whether it's talking directly to that seller and incorporating them into the conversation, or just working with the buyer and saying, "Hey, by the way, this is what the seller is asking for but because you can do this, let's go back and have a new conversation with them."

            It's great, because it usually gets the seller more engaged, more trustworthy, because there's more financing involved. There's more security in the transaction. But we spend a lot of time on education, and that isn't something that I would have expected when we started this business.

Mike:

That's interesting. I love the fact that you mentioned getting financing involved makes the seller a little more comfortable. I thought about it originally from the process of, oh obviously, if somebody is coming to the table with access to capital to be able to facilitate the transaction and is not asking me to finance the deal, yeah, of course I'm more comfortable with that.

Aaron:

Right.

Mike:

But I think having you involved and the Skyview team probably also brings a level of credibility, legitimacy, whatever you want to call it that. An extra level of feel-good factor, right?

Aaron:

This is a super stressful process for these sellers, and one of the things that I think is the hardest is, you're giving up your identity, your professional identity. You have all of these personal relationships that you're getting ready to hand over. Then you're kind of speed dating with this prospective buyer, right? It's maybe somebody you've known for a long time, but it may be somebody that just approached you, or you guys connected in a certain way, or somebody introduced you.

            What we've found is if you can take the stress of the financial side out of the equation, and allow this buyer and seller to focus on what their connecting points are, their client service model, their investment strategy, the ideas they have for growth, it really takes a lot of the stress out of it and it makes for a more successful transaction. What I find is that a lot of people don't talk about this, but the M&A space really is about partnerships and collaboration, and in an industry where it's a personal handoff, it's a recommendation from that seller to the buyer's business, and handing off these personal relationships, that connectivity long term is important.

            So for us to be able to come in and say, "Hey, let's take this financing, let's make it secure, and let's identify that purchase price that you're going for. But now you guys can focus on all of the qualitative things in the transaction." That really makes for a healthier transaction, we find it makes for a more enjoyable process for both the buyer and the seller. It, we think, brings out a lot of opportunity for these two businesses because they start off on a better foot when they enter into this transaction, that they can actually grow the business and have more success post-transaction.

Mike:

I love it. That totally makes sense to me. Now, you mentioned the kind of negotiating the purchase price, and a lot of times we think about valuation. Almost think about those things as highly correlated, even though they're not the same, but people get that ... But as it relates to an RIA lender like Skyview, how do you approach that valuation process?

Aaron:

Yeah. The valuation process has been really interesting, especially in this pandemic era. It's interesting, though. I say Skyview is somewhat agnostic to valuation. From the standpoint that when it comes to the bank financing, it's really about the cashflow and the ability for the buyer's business, combined with that seller's revenue, to pay down the debt. We can be somewhat flexible in terms of the deal structure and in terms of the valuation, and there's a tremendous amount of opinions on valuation. I have plenty of my own. But at the end of the day, what's fun is we can look at a variety of different valuation methods and look at what that seller's objectives are, and help identify ways that we can meet either the value they desire, or put together a package that meets the ultimate valuation goal that they might desire.

            I think that for so many of these sellers, they kind of get into their head that mental picture of, what is my business worth? What's my life's work worth? That's a hard thing to figure out, right? I mean, you have professional experts telling you, but you're working in your business every day, that seller is. You have an identity with it, and you feel like you know what that valuation is. What we've found is that we put together the resources for them, in terms of getting a professional valuation, but then we work with also the human element of it and the desires for their particular legacy.

            We're able to take a valuation, but also identify different deal structures if there's a variance between the valuation and what the seller desires for a full price.

Mike:

It makes sense. It is interesting, you do hear all these different approaches to valuation. But as it relates to the lender, I assume it just really comes down to, does that valuation make sense for the loan that's being made, right?

Aaron:

Yeah, right. Is there cashflow to pay that price? And if there's cashflow to pay the price, we can be somewhat flexible.

Mike:

Sure.

Aaron:

Now we keep waiting for something to happen in this pandemic, in terms of a big market correction, or some significant factors to change. But it's been really interesting, because advisors have been able to adapt. They've been able to continue to work with their clients. We've seen some impact on valuation, but it's probably not as much as I would have thought it could have been. If you'd said to me, "Hey, two years from now there's going to be a pandemic," I'd probably be like, "Oh man, what's that mean?"

            Now we're getting into this and it's like, life just kind of plugs along and we figure it out. That's been fascinating.

Mike:

Now, are there ... I actually hosted a webinar for one of Truelytics' clients not too long ago, with the topic of how of the COVID-19 pandemic is likely to affect valuations. We're actually kind of hosting an encore version of that webinar in a couple of weeks here. Have you seen any RIA valuation changes, or things that you look at differently since COVID-19? Like, oh, we need to take a closer look at that, because this environment makes us a little more careful there?

Aaron:

Yeah. Yeah, very much so. There's been a slight modification in valuations in terms of ... Obviously these are market related businesses, so if the market was to slide a lot, we're going to have an impact on valuations. But what's been interesting is that I would say the most direct influence you can have is, we can modify the deal structure.

            Valuation is important, and I think there's always going to be variances in valuation. But we've always messaged at Skyview is, with this RIA financing, you can really just modify the deal structure to meet that desired outcome. One of the easy impacts that we've said is, most transactions, we would have financed maybe 75% down payment that the buyer gives to the seller, and then the rest is held in an escrow account at the bank. Then at the end of 12 months, buyer and seller say, "Okay, did all of the clients convert?" We have what we call this lookback, right. "Did all of the clients convert? Is the revenue there?"

            If it is, then the bank releases the funds out of the escrow account. That would typically happen at 12 months. Now we're seeing that people are modifying that. Maybe it's 18 months, maybe it's 24 months. Maybe the seller stays on for a little bit longer post-sale because they can through these conventional commercial loans. But that's probably the biggest thing that we've done, is say, "Let's look at extending that lookback provision out. Maybe it's 18 months or 24 months."

            In part because it takes longer to communicate with clients in theory, although we're starting to see that advisors are getting really creative with how they're communicating messages to clients and delivering video emails and Zoom meetings and connecting with clients in really unique ways. If you can extend that lookback provision out, and modify the deal structure, that's a slight variance that we can work with and still continue on that financing project that we normally would.

Mike:

It feels like every day we hear that we're in a period of great uncertainty. And it's true. We're facing a pandemic, economic instability, and we're in an election year full of political turbulence. The effect of this uncertainty for many RIAs and individual financial advisors is that it causes them to freeze up and hunker down to weather the storm. This paralysis on their behalf, however, has created an open playing field for those of you who are looking to make aggressive moves with your business.

            While most RIAs and advisors are waiting it out, you could be on the hunt for M&A partners at other firms. You are putting the pieces in place to be ready to ride the wave of expansion that is sure to come as the pandemic lifts. If this is where your mind's at, make sure you reach out to the team at Skyview Partners by visiting Skyview.com and clicking the "get started button," or call 866-567-6282 to get the ball rolling. Or if email is still your power app, shoot a note to info@skyview.com and someone will get right back to you.

            Okay. Let's get back to this conversation with Aaron Hasler.

            Have you seen any uptick in urgency at all, on the behalf of buyers or sellers for ... I try to put myself in the position of potentially some of these advisors or some of these RIA ownership teams. If I were 70 years old right now, and prior to the pandemic I'm like, "Look, business is pretty rocking."

Aaron:

They were, yeah.

Mike:

I play a lot of golf, and I make $600,000 a year. Life's good man, let's keep this rolling. But all of a sudden, along comes this disease that is particularly challenging for folks who are older, from all the data that we've seen.

Aaron:

Right.

Mike:

I might start getting a little nervous here, right? Have you seen an urgency change at all?

Aaron:

We have, and it's been interesting. I think there was the initial shock in March and April. A lot of people were stuck in a lockdown, you couldn't go out. A lot of seller frustration there, in terms of people were isolated from their business, they weren't able to go into their office, which they'd created such an identity around. So we definitely had some sellers in May and even into June a little bit that were still struggling with that, I'm disconnected from the business but I'm still going through with this transaction.

            Now we're seeing that sellers want to talk more. This is real, I'm understanding this, this could have a long term impact on how I run my business, and things are changing fast around me. Maybe they're not as adept at the technology, maybe they just recognize they need to have a backup person in their business. But we're starting to see a real increase in the interest of sellers to have a conversation and start to explore. I think a lot of them aren't clear as to how they're going to do that, and we're starting to provide some guidance to that, but we're definitely seeing an uptick in the conversations and the inquiries that are coming into the office.

Mike:

It makes sense, right? Hey look, I mean, in a time of great uncertainty, locking down some certainty makes you feel good, right? It's kind of like flight to quality. When there's turbulent equity markets, people go to flight to quality, US Treasuries, or something like that, to safety.

Aaron:

I think this is a customer service business, right? At the end of the day we're here, financial advisors are in the position of providing their clients with advice, providing them with security around decisions that are really hard for them, or a topic that they're scared about. Yeah, for sellers the opportunity to now provide some continuity and some clarity that, hey, not only do we have this crazy pandemic, we might not be able to see each other except through a computer screen, but I'm taking steps to have additional support around me, should make clients feel really good and I think benefit a lot of these advisors.

            I've always been a believer that a succession plan is an important thing, and a continuity plan for the security and the retention of clients. I think it's now so more than ever, and what's interesting is we have creative ways for sellers to start to do that. I think we have a better financing solution than we ever have in the industry for people to secure the value of their business. But then they can choose, do I want to get out of that business or do I want to stay involved in my business and continue to work with it? They really have the choice and it's a really cool thing to see.

Mike:

That is really great. Now, at a previous podcast episode, Katie Bruner was on with me, and one of the things that I felt fascinating, some of the things that she shared was how detailed you look at the business. You look at investment process. I was really surprised that you guys look at the investment process to understand, how is this business generating its revenue, and how stable is that revenue? That makes sense, I guess. But you've also got to look at the client mix, Katie mentioned. I wonder if there are any things you're looking at a little more closely now than before the pandemic.

            When I hosted the webinar on the whole pandemic's potential impact, one of the things that I thought of was, look, we spend a lot of time recommending that advisors focus on niches. Niche based marketing is a lot easier, and it can be a lot more profitable for you. There are certain niches that might be a little scary to have in your client roster right now, right?

Aaron:

Right now.

Mike:

If it's a bunch of restaurateurs, you may have the best restaurateurs in your state, all the famous Austin people here for me. Suddenly that client roster is not looking really good. Have you started to think through that process or have those conversations with your advisors?

Aaron:

Absolutely, and in fact this came up yesterday. I always use the example, my neighbor across the street owns four restaurants, was a James Beard Award winner, and he's sitting around. He's not able to run his businesses, and he's trying to get creative with whatever he's going to do going forward.

            But no, it's exactly right. I think the thing that's most overlooked when people start to look at M&A is the demographics of the client. Where are these clients coming from? What are the professional niches? What ages are these clients? I feel that advisors are typically overconfident in terms of their ability to connect generationally as well. I think it's super important to understand the demographics of the clients, and then what communication has happened for that inheriting generation, that next generation that you're going to be experiencing 10, 15, 20 years from now.

            That's something that we look out in our analysis. I think that buyers want to do their due diligence on the demographics of the client. It certain impacts the valuation, and I think a good valuation takes into account client demographics. But I also think that for sellers, it's also an opportunity to figure out, how do I enhance my business and as I'm working with a prospective buyer, what do they have that's accretive to my client demographic that is my core base, and how can I manage that core base of clients I have but still foster in connectivity with the next generation?

            Because let's face it. A 70 year old advisor doesn't connect necessarily as well with a 25 year old advisor. Heck, I don't connect as well with a 25 year old person, right?

Mike:

Yeah, yeah.

Aaron:

But when you can start to think about these client demographics and start to create some opportunities for growth post-transaction, that's where I think buyers and sellers really win, and it becomes a very positive transaction for both parties.

Mike:

I agree, and as you were kind of describing that process, my mind immediately went to, we started off the conversation with having a client mix that might not be all that attractive during this pandemic.

Aaron:

Yeah.

Mike:

But that also kind of lends itself to the reason why you may want to consider an M&A deal, right? Hey listen, let's diversify. I may be overconcentrated in risk, and when I entered into this approach, this niche, that risk was a tail risk. It was very much way out on the tail of the curve, and not likely to happen except for a black swan event like we're seeing now. So oh my goodness, maybe I need to diversify my client base, to secure the business long term, and by the way, continue to serve those clients, right? But the business needs to survive in order to serve those clients really well, so it may make a lot of sense.

Aaron:

Without a doubt, I think the last bit on it is, one of the industries that I never would have thought would be impacted is physicians. Right? There are a lot of practices that have physician clients. Well I was talking to my neighbor a couple of doors down, and I don't know what kind of physician he is, but he was furloughed for a period of time. They as a partnership group took a 70% pay cut for six months. That's a pretty significant impact for something that ... You never really think of a doctor going out of business, but when they can't go practice or they can't access the hospital, those are big things.

            It's a great opportunity in my opinion, though, for financial advisors, whether you've got that seller or you've got a buyer and you're merging together just to say, "Hey, we understand what you're going through. We're making adaptations to our business." If I'm a seller or a potential seller and I'm saying, "Hey, not only am I working with you and I'm managing your investments, but I'm making changes to my business too to make sure that it's set for the long haul so I can take care of you," I think those communication tools and that message to individual clients is super important, and it's a great opportunity to grow.

            That's what we're seeing, is that advisors are really communicating with their clients. Whether it's just being there for them or saying, "Hey, this is my time to discover my own continuity plan and take care of you guys in case anything were to happen to me." That's a tremendous growth opportunity, and I think really what's so fun about this business.

Mike:

I like it. I like the notion of this being a growth opportunity, because people have memories, right? If you adjust your business, make sure that I'm taken care of, make sure that I'm secure ... This pandemic will lift. Those doctors that you mentioned, the physicians-

Aaron:

They'll go back.

Mike:

I had not thought about that, by the way. I had not thought about that as a market segment that might be struggling, but here's the deal. I didn't go to the doctor yet during the pandemic.

Aaron:

Yeah, right, right.

Mike:

I don't need to, and I'm certainly not going to a doctor's office for some little ... Oh, I've got an itch or something, you know what I mean? I'm just like, I'm just going to inform the doctor.

Aaron:

I'm not playing pick-up basketball, I'm not spraining my ankle, because you know, right, exactly.

Mike:

Yeah. Exactly. But yeah, those doctors will remember. When this starts to recover they will lean on you, obviously, but they'll talk to their other doctor buddies. The flip side, by the way, speaking of the doctor thing. I was sitting here thinking, you know what business is probably crushing it right now? Health insurance companies. And it sounds crazy, but if I'm not going to the doctor and I'm still paying my health insurance premiums, and I'm not using any of the value of that thing, you guys are probably like, "Nice, just keep paying that payment every month, that's awesome."

Aaron:

That's right. United Health Group is a big health insurance company that's in our Minneapolis metro area, and I think they continue to crush it. I think this has been very good for their business, yeah.

Mike:

Yeah. It's great, awesome. As we get ready to kind of wrap this up here, I wonder if there's ... You mentioned early on in the conversation that deal structure can be adjusted, obviously, to account for certain things. Have you seen anything, any changes so far in deal structure? Because I know that when the times are going great, right before this pandemic we were in the longest sustained bull market of most of our lives. A friend of mine who leads a large RIA firm here in Austin talked about it as the era of free money. That every firm was growing, year over year. If you weren't growing, you were doing something really wrong in your business, because all you had to do was wake up and your business made more money this year than it did last year.

            But that era ended, obviously. Have you seen any kind of repercussions, ripple effects into the deal structure? I would assume deals were getting closed faster before, and now maybe some changes are happening.

Aaron:

You know, this has been the craziest thing, but I think that Mike, it's actually enhanced our business. For a couple of reasons. One is, interest rates have gone down. Cost of capital is cheaper than it ever has been, and we're continuing at Skyview to prove that RIAs and financial advisors are a great borrower. Right? That banks should lend more to financial advisors because, well hey, we're pandemic proof, right? Who would have thought?

            What it's proving is that now interest rates have dropped. Advisors I think have become more interested in financing because interest rates have dropped, and so that delta between the old way of doing things which might have been a seller note versus bank financing has shrunk. We're going out there messaging to these banks that this financing opportunity is out there. Banks are seeing so many other businesses struggle, so here comes wealth managers and financial advisors and RIAs that have good businesses that continue to roll along. It's a great opportunity for banks to start to explore this vertical.

            Those are factors that you couldn't have even dreamed up, right? We all of a sudden look like a very attractive vertical. RIAs, financial advisors have really performed well over the last six months and that's fun. But then as it pertains to deal structure, we continue to message and I think this is something that is still getting out there, is that with bank financing you can really compete against the private equity money that's out there. When you finance 100% of an acquisition, you can get really creative with the deal structure. It's just that education process that these tools are even available in the first place.

            But then once you have 100% financing, which means you're spreading out that payment load over 10 years, you can actually do more with the deal structure, and you can either adjust if, let's say our president changes and tax rates change. Maybe I stagger the deal structure out of the escrow account over a period of three or four years to stay below a capital gains threshold. Maybe I provide more financing now, because we have an opportunity with good tax rates to get a transaction done, but then that seller wants to stay around for a few years for continuity.

            Bank financing really opens that door to an endless possibility of deal structures. That's the message that we spend so much time on on a daily basis, is it allows you a lot more creativity and benefits the seller in a tremendous way to have bank financing.

Mike:

Yeah, I agree. It's been really exciting to see this market start to develop, and kind of be here at the beginning of it. Because I can remember, a decade or so ago, you're looking at the FP Transitions report that comes out every year, and you see the typical deal structure is this way, and how much is the seller retaining, and what's the buyout look like, and all that type of stuff. Suddenly see that banks woke up. This makes sense.

Aaron:

And sellers always say, "Well if I'm going to do my life's work, I want to be paid out over two or three years." Right?

Mike:

Right.

Aaron:

Versus otherwise, they just keep working and just keep running the business, because like you said, I'm playing a lot of golf, I'm doing whatever else, and I have a good lifestyle. But now that we can say, okay, you can still get that payment over two or three years. It's so important for the buyers that you can spread that risk load out over 10 years. It kind of goes back to the old idea of a 30 year mortgage versus a 15 year mortgage. 30 year mortgage allows you more purchasing power, right?

            This is the same concept here. You can take that, but then you can say to that seller, "Hey, what do you want? Do you want 50% down and then the rest coming out over a few years? Do you want to stay as an owner? This is conventional commercial financing, so you can stick around owner if you really want to." What I always like to do is understand, what are the needs of the seller? What's driving them to sell? What's going on inside their head? What are their goals? Then you can also work with that buyer and figure out, what's the dynamic between these two? And start to engage in that conversation and get creative with the deal structure.

            That's the thing that I think my department finds so fascinating and fun, is to be able to identify what these clients need, which is our financial advisor clients, and then go out there and find them a solution that works really well for the transaction they're working together on.

Mike:

That's awesome. I assume many of the people who are listening to this episode are going to want to follow up. They're like, "I need to talk to that dude, right now." What is the process for I guess a buyer or a seller who's really interested in this, for them to get in touch with you and take advantage of the Aaron Hasler brainpower in their M&A process?

Aaron:

We have a bunch of tools now, and they continue to grow. The first thing they can do is they can always just visit skyview.com. All of our information is on there, mine included. Then we have built out something called a buyer acquisition toolkit through our sister site, APBOE, or the Advisory Practice Board of Exchange. Buyers can go on there and see how much they would qualify for from a financing perspective, and have some of the acquisition tools, the practice profile, the purchasing power score, that really are going to impact and further the conversation with a potential seller.

            Then we always recommend is, reach out to us, and if you're engaged in a transaction, you're starting to communicate with a seller, call us. We'll provide you with some consultation on deal structures, we'll provide you with valuation resources. Professionals in the industry that are going to help. Then as I say all the time, I'm happy to engage with that seller. Tell them a little bit about the bank financing process and what's happening.

            Because when we can tell that seller, hey, your buyer is getting scrutinized to the Nth degree. We're looking at all their financial details. We're communicating with them, we're educating them on bank financing. That seller should feel really good. That's a powerful tool that a lot of people don't understand or realize, is that we can communicate, and we really enjoy communicating with the seller through the process. The more they understand it, the more comfortable they are with the transaction, and the better this whole process goes. Because it is a stressful process with them, when you're giving up your life's work.

Mike:

Yeah, sure. Yeah, absolutely.

Aaron:

I really enjoy that side of it, and I enjoy working with these sellers and helping educate them. Then I really enjoy helping these buyers come up with good, solid deal structures that enhance their business and really allow them to purchase a practice that is meaningful for their enterprise.

Mike:

That's great, that's great. It really comes through. I've said this a few different times on this show, is that the team at Skyview, you can just feel it, right? There's an energy, number one, you guys love the space.

Aaron:

Yeah.

Mike:

You seem to love the people that you're working with and serving, which is great. But there's just an energy, there's also just an energy of you guys are just there and having a good time as well.

Aaron:

We have a super fun team. I'll tell you what, so I've been working in my basement for now since the end of March, and I miss it like crazy. The Skyview office is on a lake. There's a bar out the back of the building. There's a beach that you can walk to. But we have a great open office. We've got glass walls, so everybody can kind of see you working in there, and we really enjoy the challenge of working with clients every day and problem solving. We've just got an energetic office and we have a lot of fun doing it, and it's really been an enjoyable process and an enjoyable business to build.

Mike:

That's awesome. I can't wait to get up there. I've seen the videos and the photos. Under normal situations, I think I would I be up there hanging with you guys and enjoying a couple of beverages at that bar.

Aaron:

And the lake is fantastic, you can't beat it.

Mike:

I'll have to wait. 2021, baby, it's coming.

Aaron:

That's right, that's right, exactly. We'll move on.

Mike:

That's right. Well Aaron, this has been fantastic. I really appreciate you coming on the show, carving some time out in your home office bunker there. It's been great. Thanks, Aaron.

Aaron:

Thanks, Mike. Really appreciate it.

Mike:

Thank you very much for listening to this episode of the Advisor Financing Forum podcast. It is an absolute privilege to have you spend time with us each week, and that is not something we take lightly. To make sure this show continues to fire on all cylinders like Tommy Joe Martins' Skyview NASCAR number 44 ripping around the track, please do send in your questions and suggestions for the show. Whether that's a topic or a guest, send them in to podcast@skyview.com, or hit the team up on your favorite social media channel. We really want to hear from you, because that's how this show continues to bring value to you, is that you let us know what you want to know and we'll get it on the show.

            I did not mean it to sound like a Dr. Seuss thing there, but there you have it. Anyway, also, huge thanks to Aaron Hasler for joining me today. I found his insights into how the pandemic is affecting RIAs and individual advisors on the financing front for mergers and acquisitions to be really interesting. You know, it is a great time to make a move, as I mentioned there in the midroll, and Aaron talked about, that the timing is right. Rates are incredibly low. Many of the competitors for M&A deals maybe kind of putting their head in the sand right now, a little afraid to do anything when there's so much turbulence in the market.

            Make your move. If that's something you're interested in and you want to learn a little bit more, head on over to Skyview.com as Aaron suggested, or call 866-567-6282. Maybe you can set up a Zoom call with Aaron and get a peek at his basement bunker office. It's really great, you're going to totally love it. You know what? That actually gives me a fun idea. Why don't you send in a picture of your home office setup to podcast@skyview.com? Maybe we can do something fun like pick a winner and then that person can join me on the show. That'd be kind of neat, right? See, we've got a show idea. Boom. Send in a picture of your home office, or tag Skyview Partners on Instagram or something. The social team will help with this, right? Check it out, it's going to be awesome. Pictures of home offices of financial advisors, it's going to be awesome. I love it, it's going to be cool.

            All right, lastly, make sure you stay safe and healthy, and help others to do the same by wearing your mask and keeping yourselves at a distance. And of course, you know my favorite. Be nice to each other. It's good for your soul to be nice to people, okay? All right, we will see you next time on the Advisor Financing Forum. See you. Bye.

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