chapter one > the hunt for firms to buy
chapter two > How the seller picks its buyer
chapter three > Negotiating the deal
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We’ve all seen the headlines. Over the past year, RIAs seem to have inked one deal after another. The purchase of a $1bn firm used to be earth-shaking news; now it seems to be a weekly event. Indeed, according to a July report from Echelon Partners, the past four quarters have been the four busiest in terms of the number of deals announced. And those deals are getting more significant: the average AUM of an acquired firm has soared to over $2bn, according to the investment bank. So we know that buyers and sellers are meeting up, forging agreements, and finding ways to combine their firms. The question we address in these pages is: How? What does the deal process look like from beginning to end – from the vague thought that ‘we ought to buy’ or ‘we ought to sell’ all the way through integrating employees and technology systems? In this special report, we tell you just that. In the four chapters that follow, we examine how the buyer finds a seller, how the seller vets the buyer, how the deal gets hammered out, and how the two firms combine. And through these pieces, we weave the story of one specific deal – Procyon Partners’ purchase of Pivotal Planning Group – to help illustrate what this all means in practice. How do all these deals actually get done? Let’s find out.
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chapter four > Inside the integration process
Silver lining
Oasis or mirage?
Technological eruption
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As a seller, would you like to be advised by the team that United Capital leveraged to become the 2nd largest RIA in the country (and not have to pay them?). That’s what Allen Darby and his partner Jacqueline Martinez are betting on as they launched their M&A firm this year.
Are you Deal Ready?
Darby was the person responsible for the outbound M&A success that helped United become the 2nd largest RIA in the country before selling to Goldman Sachs in 2019, sourcing 30+ of their deals from 2012-2019. Martinez was the lead analyst and deal structure expert that put together just about all the United Capital transactions since 2014. Following Goldman Sachs’ acquisition of United Capital in 2019, she led the initiative at GS PFM to build a revamped acquisition program from the ground up which completed two acquisitions into the former UC business. “We’ve been working in a world dominated by seller advisors charging some remarkable fees to sellers seeking a partnership” …while we see that service as valuable, we think we have a viable alternative for sellers to consider…specifically letting the buyers pay our fees. “ “If you’re a seller open to a partnership dialogue, your choices historically are to try and find a buyer on your own, which is incredibly challenging and time consuming, or hire a seller advisor to be your expert. We think that’s a better approach, but its pricey. We get you to the same place as a seller advisor without the fees.” So that’s what’s in it for the seller, what about the buyers? United paid Darby to source, negotiate and close transactions on their behalf and it seems to have worked out great for all the parties. “United was almost exclusively using seller advisors to source deals before I showed up. Their outbound M&A search wasn’t that robust, and I think that’s how we were impactful to them. We created a source of acquisition pipeline that was largely noncompetitive.” “There is a reason only a hand full of National aggregators do 90% of the transactions around the country and it’s not access to capital”. “We think the reason is simple…. they know how to do deals and smaller firms just don’t”. They have armies of M&A people that focus exclusively on finding and winning partnerships. Most smaller firms don’t have a professional M&A team. Typically, it’s a CEO and maybe a business development person who tries to do it all and they just struggle mightily to get deals done. Training our clients is easily our biggest challenge. Yet I think that’s what we bring to the table for smaller firms. We know how this process works and we elevate their M&A game to the level of the big boys.
Allen M. Darby
Jacqueline Martinez
CEO Alaris Acquisitions
Managing Partner Alaris Acquisitions
Interviewing the Matchmaker at Alaris Acquisitions
Q: So, you launched the buyer advisory model this past year, how is it going so far? A: We have learned an awful lot about what not to do! Mostly regarding our clients. United was such a fantastic buyer of firms from the sense they knew what they were doing with M&A. When I started Alaris, I thought I would just go find a few “baby UC’s” and be off and running. We now have 20+ clients and trying to educate them how to work within our process has proven to be a significant challenge but we’re figuring it out. Our first year looks to be a success with 20+ transactions either having already or are looking good to close. Q: Why do you think its succeeding? A: Well, I hope it’s our business model, but it could be the looming tax law changes! I think we represent a new route for firms interested to have this partnership dialogue. We’ve been around the block as an owner of our own RIA, to being a seller, to being a M&A consultant at a high level, so we know how to help both buyers and sellers communicate to one another about what’s important to each. Our process is sound. Lengthy, but sound. Our clients (buyers) lean on us to know them intimately and find partners who align to their unique model and culture. Then we spend a lot of energy with sellers on the front end helping them identify their ideal outcomes, which we then use to screen against our client’s model(s). Once we take the sellers through this process, we have a firm grasp on what they are looking for economically, what autonomy profile they are seeking, and the vibe of firm they want to be a part of. So, unlike going it alone, the seller doesn’t have to regurgitate the information over and over to potential suitors as we handle that before they ever spend any time with a buyer. It’s a massive time saver for sellers. Once we match with a client, the partnership success rate is quite high. The client also benefits by having a one-on-one dialogue with the seller that is matched to them, rather than the typical seller advisory process where multiple buyers are vying for the seller’s attention. Q: How do you see the market shaping up over the coming years? A: Market corrections withstanding, it seems like it’s only going to accelerate. Demographics will drive this wave of M&A for the foreseeable future. Valuations are moving north, but I’m not sure that’s just a reflection of the market catching up the real value of these businesses. I think they were underpriced for a long time. The reality is that fee compression hasn’t been the boogeyman everyone has been talking about, and the end clients really value the advice given by good practioners. Buyers are willing to pay for those stable and growing cash flows. Q: What is the largest misconception about M&A you deal with on a daily basis? A: I would say from a seller’s perspective that selling equates to giving up on their entrepreneurial dream(s). It’s tough convincing an entrepreneur that selling their business to another firm is a good idea. They are entrepreneurs because they like their independence. But the reality is with most acquisitions, the buyer has no interest in turning you into an employee who simply does their bidding. In fact, it’s just the opposite…they want you to keep your entrepreneurial energy, just directed in a broader direction. Things will change with any transaction, but the fear of losing control etc. is largely overblown. Further, most transactions we deal with the seller is rolling over a portion of the valuation in some form of equity in the buying entity, so they are still owners in the business. In a lot of ways, joining a larger firm can help you achieve your entrepreneurial dreams faster. From the buyer’s perspective, it’s what to build your value proposition (to a seller) on. I ask firms who call us asking us to represent them, why they think a smaller firm should join them, and most will start citing their values, team chemistry, or some other form of subjective information that is largely worthless in trying to convince a firm you’re the place for them. Obviously that stuff is relevant, but you must have something tangibly unique about you to stand out in this competitive landscape. Do you have a differentiated client experience? Do you have a practice management model that you can demonstrate improves KPI’s across the business? Do you have an organic growth strategy that drives revenue? Do you have expertise or service lines that the new firm can access that makes them more competitive? Most think they can just centralize some back office functions and tell people how awesome they are and sellers will flock to join them…. it’s not going to happen. Q: Where do transactions fall apart? A: Apart from just irrationally placed fear, typically it’s over personality conflicts and/or pride from the seller. We have an industry filled with egos, and I encourage sellers to put on their best show of humility when entering this process. It’s ok to be proud of what you have built but be willing to learn new tricks and adopt new ways of doing things. Keep in mind these larger firms have figured out a lot of stuff that perhaps you haven’t so be willing to humbly accept their suggestions. Q: What happens if you don’t have a match between a seller and a client you represent? A: That actually doesn’t happen very much as we have such a broad spectrum of clients, however it has occurred from time to time. If we go through our buyer advisor model, and we don’t have a fit, yet you as a seller have enjoyed the work we have done thus far, we can then become your seller advisor and take you out to the broader market. But we start with the buyer advisor model first because of the obvious economic advantage to the seller. Q: If a seller or buyer engages with you, must they be exclusive with Alaris? A: Nope. No need to do that…we either earn our keep or we don’t. I’ve been working that way for years and I have no problem continuing to pursue this approach. We are either valuable or we’re not.
For many RIAs, executing an M&A strategy can be more aspirational than practical. Firms that don’t have the institutional knowledge or capital of serial acquirers may bump up against headwinds. They don’t have well-established bankers that can generate deal flow. They might not have tens of millions of dollars of cash sitting on their balance sheet or a lending relationship for acquisition financing.But personal relationships – and serendipity – can make up for all that. As we see (above), Procyon Partners’ long-held acquisition dreams became reality thanks to a chance meeting on the back of a golf cart. Many RIAs of scale take a similarly localized, personalized approach to M&A. Take Rockford, Illinois-based Savant Wealth Management. The Cynosure Group-backed RIA made its biggest acquisition in early 2020 when it snapped up local rival Huber Financial Advisors, which is based in Lincolnshire. Savant, which has made two further acquisitions of smaller RIAs in 2021, has never purchased a banker-advised firm. ‘Most of the companies that are on the market and hire a banker to represent them, they’re usually spent oil wells that are trying to sell for the top price,’ said founder and CEO Brent Brodeski. ‘They don’t really care who they sell to and they’re looking to take a big check, usually in the form of cash. That’s the opposite of what we look for.’ Savant, instead, looks for acquisition targets in its immediate sphere of influence. ‘For the most part, they find us, and/or we do deals with friends,’ Brodeski said. The best advice for RIAs looking to get their feet wet in dealmaking almost sounds like a dating tip: put yourself out there. ‘For years, we shied away from going to conferences because we felt we had a special mousetrap,’ said Matt Fleissig, the president of $25bn Lovell Minnick Partners-backed Pathstone. ‘Over time, we realized that was a mistake. If you’re looking to grow and find amazing talent to get better, you have to be at conferences to make those contacts, to try and find deals and sale processes that are not in a formal, banker-led process.’ SIZE MATTERS Of course, firms such as Pathstone have plenty of cash on hand available to deploy full-time to M&A, which can create a massive institutional advantage. A strong balance sheet can give even novice acquirers, such as CI Financial, a leg up. The Canadian asset manager didn’t have a history of RIA dealmaking when it entered the M&A market at the start of 2020, but it had plenty of cash to throw around; since then, CI has pulled off 20 acquisitions in roughly 20 months from a standing start. Scaled-up serial acquirers also have personnel who can focus full-time on M&A sourcing – a luxury that smaller, aspirational acquirers can’t always afford. Just ask serial RIA acquirer EP Wealth, which manages roughly $12.9bn and enjoys support from both private equity firm Berkshire Partners and RIA minority investor Wealth Partners Capital Group. ‘We definitely do a fair bit of outbound, looking for folks that would be a good fit, and we do cold outreach with calls, emails, LinkedIn; things like that,’ said Rich Gill, a senior partner at Wealth Partners Capital Group. ‘There are plenty of bankers and agents and representatives in the space – and we work with those folks. In our strategy with EP, there are certain geographies that we are targeting where we know we have a client concentration, where we see growing wealth. ‘It doesn’t work so well to wait around for somebody else to call you with a good opportunity in those places. So we do outbound.’ Wealth Enhancement Group chief executive Jeff Dekko, whose firm oversees roughly $40bn in assets, estimates that his RIA self-sources between 40% and 60% of its transactions. Before it became an acquisition machine, Wealth Enhancement Group grew in part thanks to outreach marketing via its own radio broadcast. Dekko, a former marketing manager himself at General Mills, indicated that the Onex Corporation- and TA Associates-backed RIA uses the same principles to attract acquisition targets as it does to woo new clients: company-driven marketing and referrals from satisfied customers. The word from happy sellers can travel far in the relatively tight-knit world of RIA M&A. ‘Right now, there’s a little bit of a different dynamic going on in the marketplace,’ Dekko said. ‘People always talk about how many buyers there are, but I think that when you boil it down to the number of buyers that can actually get transactions done and are put together in what they’re doing, it’s a little more limited than people think.’ At a certain point, dealmaking can become a self-perpetuating machine for advisors with a track record of success, Dekko said. ‘We’re getting more calls from banking firms saying: “This is a firm that we know what they’re looking for and we know what you have to offer, we think this is a really great match.” It’s a little bit less of a full-on auction process.’ BANKING ON RELATIONSHIPS That positive feedback loop is strengthened by the close relationships many acquirers have built with friendly investment bankers, who can be a source of recurring deal flow. Take serial RIA minority investor Emigrant Partners, which is led by chief executive Karl Heckenberg. Heckenberg finds deals around the country on account of the close ties he has built with prominent investment bankers within the industry, such as Raymond James’s Liz Nesvold, Park Sutton Advisors’ Steve Levitt and Republic Capital Group’s John Langston. ‘We had a business development team a couple years ago and I think what we came to realize is that, with the volume of transactions we’re looking to do in a given year, frankly, the vast majority of the firms we end up partnering with have hired an advisor,’ Heckenberg said. ‘Pretty much almost everything we’ve closed in the last two years… have come through advisors like Steve or Liz or John.’ But not every RIA of scale sees banker-led processes as the best path forward. Pathstone has instead decided to prioritize its participation in affinity networks and study groups for prospecting. The RIA receives its fair share of inbound calls from bankers, said Fleissig, though he added that those sale processes ultimately become a question of who is willing to pay the highest price as opposed to who may be a better cultural fit. ‘That’s why we’ve decided to go back into the industry [for prospects]. I think there was a period of time where we did not go to a lot of the industry conferences, we did not belong to industry memberships,’ Fleissig said. ‘I don’t want to say it’s old-fashioned hard work,’ he added, ‘but how else do you meet people and build relationships for people who want to join you?’
For Procyon Partners, the purchase of a $400m RIA started with a scavenger hunt. Literally. When Connecticut-based Procyon was founded in 2017 by Phil Fiore and four other ex-UBS advisors, expansion was already part of the game plan. ‘The firm was always going to be more than just the five of us,’ Fiore said. Until 2019, the firm had elected to grow only by hiring other experienced advisors. For instance, the RIA opened a New York location after it hired advisor Jim Jeffery away from fellow RIA Solaris Group. Then Fiore went to a South Carolina retreat organized for Dynasty Financial Partners affiliates. For one of the activities, a scavenger hunt, Fiore was paired up with John Marchisotta of Melville, New York-based Pivotal Planning Group. ‘We’re in this massive resort in Palmetto Bluffs and we’re all on golf carts with our teams, scavenger hunting,’ recalled Fiore, Procyon’s chief executive. ‘And John was literally holding onto the back of the golf cart I was driving. That’s how we started to kibitz.’ The conversations turned more serious at the long wooden table in Procyon’s Shelton headquarters. After bonding over Italian food at a nearby restaurant, both sides knew they had a potential partner on their hands. ‘It felt like we were working together for 20 years,’ Marchisotta said. ‘I don’t know how else to explain it.’
If you want to expand your firm with an acquisition, where do you start? In this first chapter, we find out how purchasers identify their targets.
IAN WENIK
Allworth Financial is an investment Adviser registered with the Securities and Exchange Commission.
Pat McClain, CFP®, Co-Founder & Co-CEO, describes Allworth Financial’s ‘middle-class millionaire’ focus in M&A
Middle-income retirement space is new M&A sweet spot
PAT McCLAIN, CFP®
Q: How would you describe Allworth’s approach to M&A? A: At Allworth, we have a unique philosophy of how we think about the business and our clients. We want to ensure that our partners share this approach: it’s all about culture. The interests of our clients always come first. Every financial recommendation is made for their benefit and not ours. Second, we approach M&A with a growth mindset. Most firms aren’t growing, and if they are, their growth is almost entirely tied to the decade-long bull market. We are looking for partners with a strong desire to be a part of a growth-oriented team. Finally, we look for alignment between investment philosophies with a clear focus on financial planning. In order to become a part of Allworth, potential partners need to meet all of the above criteria. Q: What are you looking for in your partners? A: We’re less interested in businesses that are tactical in their investment approach, because we don’t believe in market timing. At Allworth we favour asset allocation over time. Our ideal partners are firms that are interested in growing and that are both employee and client-centric. Our client retention rates, and employee satisfaction scores, are far above industry averages. If a firm does not have a client-first approach, or the firm promotes itself to us as market timing experts, those are real red flags for us. The most important asset in any business are the people. Equally important of course is that these firms are interested in serving clients to the highest quality on a consistent basis. We deliberately look for partners, not targets. In every deal that we have ever done, our partners rolled over equity into our firm. There’s a component that’s cash and we also trade a portion of their stock for our stock, so firms that join us become genuine business partners working towards the same business goals. Q: What is the difference between integrators and aggregators and why should advisors considering a sale care? A: There are many different types of investors and business models in our space, ranging from full buyouts to part or all of the seller’s P&L. But broadly speaking, an aggregator concentrates on buying a part of the sellers P&L, hoping to buy a part of the profit and aim to bring efficiency to technology and accounting. Whereas an integrator actually integrates every part of their firm including human resources, operations, finance, marketing, and so on. A defining factor behind the success of Allworth is that our advisors don’t have to find their own clients. We have both a marketing team and a future client development team- all of whom work together to nurture prospects and coordinate future client appointments for advisors. This is a very different philosophy to most other firms on the street. Sales enablement is a key factor in bridging the mindset gap between first and second generation advisors. The founders of a company are typically very good at finding new clients and building the business, whereas second generation advisors, in our experience, have less of that skill. We have solved for this. Q: Could you talk us through your investment philosophy and style? A: Our Chief Investment Officer and his team build our clients a savings and investment strategy that uses proven data to help them achieve their goals and enjoy life in retirement. Our investment beliefs are firmly grounded in asset allocation, allowing us to match our clients’ financial needs with their risk tolerance. The investment process begins by quantitatively and qualitatively analyzing vast amounts of capital market data. This allows us to develop our investment viewpoint that serves as the framework for our asset allocation. We regularly run multiple optimization and stress test scenarios to inform our strategies. We then score more than 15,000 different funds each month using our propriety methodology to help us select the right investment managers for our strategies. Additionally, we focus on low-cost ETFs and mutual funds when building our various strategies. Our advisors can choose from many strategies based on whatever is in the client’s best interest. Some of these strategies are core-satellite, all index, ESG, and DFA portfolios. With access to the major custodial platforms, we’re ready to integrate with all our future partners. We are also a broker-dealer, which makes it easier for independent advisors to monetize and transition their legacy commission business alongside the transaction. Q: M&A in the retirement space is a special area of Allworth’s expertise. What makes this space particularly compelling? A: The retirement space is extremely attractive due to its phenomenal asset value. This is where the lion’s share of America’s wealth sits, and it’s also where money is in transition from a pension buyout or a rollover. At Allworth, we serve the HNW demographic, but a key target market is the middle-class millionaire as our primary client. Meaning, folks who have worked hard their whole lives to save up for retirement. Most of our clients have between $500,000-$5m in investable assets. It’s these folks that we can truly help stay on track throughout retirement, allowing them to enjoy family, take trips and have access to long term care. All too often you hear stories of clients who were given poor advice and have done irreversible damage to their savings. Our goal is to prevent that as much as possible. Q: For advisors considering a sale or partnership, what can they do to prevent failed deals? A: We recommend for advisors to be as transparent as possible at all times. What typically kills the deal are unexpected, negative surprises that emerge during the due diligence process. Good record keeping and access to quality data is essential, especially when it comes to the financials of the business and client trends. Let me illustrate this with a concrete example: we recently broke off a deal with a great firm that we were days away from signing. Months and months of work, but at the last minute, discrepancies in their investment process emerged that they had not disclosed upfront. When we learn that a firm is not being transparent, that ruins the deal for us. Q: What’s next for Allworth? A: Four years ago we had $2.4bn assets under management, today we are at $12bn and by the end of 2025 our goal is to exceed $40bn. In finance, often AUM is measured as the only barometer for success, when really people should be looking at profitability. Where I shop, they don’t take AUM, but they take money. When we traded with private equity the last time, we traded at the same price as firms 3x larger than Allworth because of our profitability. AUM is an important consideration but much more important is how fast a firm is growing and how much profit it makes. Our annual growth rate has been in the 60%+ range for the last five years with very healthy margins. While never satisfied, we truly like what we’ve accomplished and how we’ve accomplished it. We like our model, it’s proven, and we very much expect the growth to continue.
Co-Founder & Co-CEO Allworth Financial
Burning bright
For financial advisors, selling their practice is seldom as simple as identifying the highest bidder. Because RIA businesses are largely extensions of the advisors who run them, finding a buyer or partner is often a difficult, emotional process for the business leaders. Most sellers are determined for their firm to land with a buyer that won’t betray the values upon which they established their firms, whether that’s executing a unique investment strategy or keeping clients out of sales-driven products pushed by big broker-dealers. Although a laundry list of voracious, private-equity-fueled RIA aggregators present lots of opportunities to score a hefty windfall, many sellers are willing to accept less cash if they believe the buyer will stay true to the founder’s values. Finding such a match may be easier said than done. But since many disparate firms are now looking to purchase RIAs, it’s rarely impossible. DATING AROUND For Frank Armstrong, the process of vetting prospective buyers for six-advisor, $1.1bn Miami RIA Investor Solutions was like going on a series of blind dates. ‘You sit down with a lot of people. Most of them are nice, but there’s no spark,’ he said. After enjoying an early adopter advantage on the internet in the 1990s, Armstrong said he felt his firm had grown to need the support of a larger organization on marketing and lead generation in the modern market. He knew his ideal buyer had three qualities: they’d ensure client continuity, ‘up our game in terms of service,’ and provide well-defined career development opportunities for his advisors and associates. Also important was the ability for his firm to retain autonomy over its client service strategy and investment policy. ‘It’s a process of winnowing down the candidates. Frankly, we had more than one call every week from someone who wanted to do the dance,’ Armstrong said. ‘Some have tons of money but don’t have much of a plan. Others don’t have much money at all and want to buy you because they want your assets. Some want me to sell real estate or insurance or some other stuff that I’d rather die than do.’ After hearing offers for more than two years, Armstrong finally found what he was looking for in Onex Corporation- and TA Associates-backed aggregator Wealth Enhancement Group, which bought Investor Solutions in August. ‘We were offered more money than these guys offered, but the fit just seemed right,’ he said. ‘It was the least disruption in terms of philosophy, ethics and vision.’ For Russ Charvonia and Michael Snowden Jr, the founding partners of $277m Ventura, California-based Channel Islands Group, the search for a deal was driven by Charvonia’s desire to ‘back away over time’ from the RIA. ‘Affiliation is what we were interested in,’ he said. In order to maintain control over the process, the two started making calls to high-profile aggregators themselves. ‘If we left it up to an investment banker to do the heavy lifting, we wouldn’t get to know the firm we were joining,’ Charvonia explained. Marty Bicknell’s acquisitive Mariner Wealth Advisors was the first firm they chatted to. Charvonia didn’t get his hopes up. ‘We weren’t looking to affiliate with a Mariner-type organization,’ he said. ‘My impression initially of affiliating with an RIA aggregator was that there was going to be a lot more bureaucracy, hoops to jump through and so on.’ However, after subsequently meeting with more than half a dozen other suitors, the advisors realized their impression of Mariner had changed.
IAN WENIK Pivotal Planning Group managing partner John Marchisotta and his three partners felt they had outgrown their majority owner, accounting firm Satty, Levine & Ciacco, which held 55% of the company. The partners split the rest. Headquartered in Melville, New York, Pivotal had initially been reliant on referrals from SL&C for client growth. But in the RIA’s 19 years of existence, things had changed. ‘I think a lot of firms that partner with CPA firms are doing that because they can’t build a business on their own and they’re 95% reliant on getting referrals from the CPA firm,’ Marchisotta said. But once the RIA stands on its own, the combination can become awkward. ‘You’re building something with people you care about,’ and then you have owners who are ‘just not involved,’ he said. Marchisotta had already fielded inquiries. Serial RIA acquirers such as Creative Planning and Focus Financial Partners had approached Marchisotta in the past, he said. But neither firm’s model appealed. ‘I had no desire to be taken over by a larger company,’ Marchisotta said. ‘I had a vision. And what was unique about Phil [Fiore] is that he and I shared the same vision.’ Pivotal and Fiore-helmed Procyon Partners had relatively similar structures, with each firm maintaining their own 401(k) plan management and private wealth divisions. Pivotal was smaller, at $400m in AUM, as compared with Procyon’s $4bn. Both were both network firms of Dynasty Financial Partners, a provider of middle- and back-office services to RIAs. Dynasty helped Fiore and four partners launch Procyon in 2017 after their departures from UBS, and signed on Pivotal in 2019. Fiore and Marchisotta would try to solve Pivotal Planning Group’s ownership issue by attempting to do something that had never been done before: merging two Dynasty network RIAs together.
What does the dealmaking process look like from the seller’s perspective? If you’re interested in making a deal, how do you pick the right home for your practice?
‘With two of the companies, we cut the conversations off after 15 minutes because it was just so obvious they weren’t a cultural fit. They were all about acquiring the assets. We were looking for someone to take away the back-office hassles for us while giving more breadth and scope to take better care of our clients,’ Charvonia said. ‘What we really appreciated about the Mariner model was autonomy.’ He specified that he and Snowden sought to add as many services as possible, bolstering their firm’s existing estate planning practice and mortgage services. ‘Mariner has Mariner Securities, Mariner Trust Company,’ he said. Additionally, in terms of a custody partner, ‘we really needed to stay with Schwab,’ Charvonia said. Mariner ticked all the boxes. CULTURAL ALIGNMENT Nearly anybody who has sold a business will tell you cultural fit is a crucial differentiator that sets the right buyer apart from other suitors. But what does culture mean, exactly? Different firms have different interpretations based on their priorities. For David Tuttle, who in 2019 sold his $592m Connecticut-based RIA MacGuire, Cheswick & Tuttle Investment Counsel to Crestwood Advisors Group, a Focus Financial Partners affiliate, culture was about operational freedom. ‘We wanted to keep our independence, we wanted to be able to pick stocks, we wanted to be able to keep working with clients the way we did,’ he said. As the RIA’s youngest partner at 61 years old at the time, Tuttle said his firm started considering M&A as a way to maintain service continuity for its next-generation clientele. Early on, Tuttle said, he and his partners were buzzing over a potential acquisition by a ‘substantially sized bank’ looking to establish its first foothold in Connecticut. ‘It was exciting for a while – tons of money, we were going to grow to however-many branches,’ he said. ‘But it just didn’t feel like we were going to be able to keep doing what we were doing how we liked doing it. It seemed like we’d end up getting caught up in their more rigid organizational processes and compliance and all that.’ Crestwood, on the other hand, showed a ‘willingness to take us as we are,’ Tuttle said. Crestwood’s Focus connection made it feel like ‘we were getting the benefits of a larger-scale deal without any of the downsides,’ he said. For Fred Taylor, Charlie Farrell and Bob Van Wetter, partners and executives at $1bn Northstar Investment Advisors in Denver, culture was a matter of personality. Northstar sold to Abry Partners-backed serial acquirer Beacon Pointe in August. ‘For a lot of years, we were skeptical of potentially merging with someone,’ Farrell said. ‘We’ve gotten along great as partners and we never wanted to monkey with that relationship.’ Beacon Pointe president Matt Cooper, chief executive Shannon Eusey and general counsel Janet Hathaway were able to break through the trio’s wall and make them comfortable enough to joke around over Zoom. ‘We felt we could work with them in the same way we’ve been working with each other. That was the number one thing that got us over the hump of being willing to merge with another firm,’ Farrell said. Van Wetter added: ‘On our very first call with Matt, he said, “no jerks allowed.” Almost every decision that’s made, every statement goes through that filter. Am I being a jerk if I insist on this or say this? That’s an indicator of sustainable culture.’ DUE DILIGENCE Sometimes, what looks like a good fit on paper can deteriorate under a magnifying glass. A rigorous due diligence process can either cement the compatibility of the involved companies, or freeze negotiations in their tracks by bringing to light hidden red flags. Channel Islands Group’s Charvonia said a crucial part of his team’s due diligence process was speaking to other advisors who’d sold their firms to Mariner. ‘We talked to three different advisors, one of whom had been with them for a little over 10 years, one who’d been there for five or six years, and one who just joined a year ago at the height of the pandemic. We were able to get three distinct impressions and feedback. We asked them some tough questions, and their answers helped convince us the culture at Mariner was as we were seeing,’ he said. ‘I’d recommend folks do that.’ The Northstar partner trio did something similar. ‘We talked to some of their other merger partners over the years, and they all said the same thing – Beacon Pointe was a terrific partner for them,’ Van Wetter said. ‘That gave us a lot of comfort and confidence.’ For Integer Wealth Advisors’ managing partners Tom Foglia and Sam Paglioni, the most important piece of due diligence wasn’t with the buyer but with Integer’s own clients. Integer, a Philadelphia-based RIA with $310m in assets, sold to $2.8bn Focus affiliate JFS Wealth Advisors in May. ‘Talking to lifelong, strategic clients who have valuable business insight, as well as talking to those who may be difficult to transfer just to get their feedback… is a big piece of it. If you surprise them with it, you’re going to have a problem,’ Foglia said. ‘That’s probably the most important part of the process,’ Paglioni added. ‘Don’t think for a minute that your clients are going to blindly follow you. You’ve got to engage them. You’ve got to let them know the rationale. Let them know you ain’t leaving, because we talked to a few clients and they were shaking thinking we were retiring.’ For Integer, that decision paid off. Every one of Integer’s clients stayed with the firm through its integration with JFS.
COMPENSATION STRUCTURE The reasons a seller wants to sell will inform their desired compensation structure and can therefore narrow their pool of suitable buyers. Advisors looking for a full-on successor ahead of retirement might want to exit the business altogether for as large a windfall as possible. Those looking for organizational support as they continue building their business might want to defer some cash into equity, perhaps with incentives for future growth. For Integer, the aging partners’ capacity limitations drove their M&A interest. ‘The employment market was tight. Finding the right talent to build out a team would’ve taken Tom and I a considerable amount of effort and that would’ve taken our immediate eye off the ball of serving our clients,’ Paglioni said. ‘How do we continue to grow the firm and serve clients too?’ The two started entertaining the roll-ups that had taken to routinely calling their office over the previous several years. ‘Some guys just wanted to buy us out. They came in more with a sledgehammer. There was no talk about client transition and servicing. It was like, “cold hard cash,” and that’s not what we were interested in,’ Foglia said. ‘Tom and I aren’t ready to be done yet,’ Paglioni added, highlighting that the duo needed to hold equity interest in the resulting firm in order to strike a deal. The merger opportunity with JFS presented a symbiotic relationship in line with what the partners were looking for. ‘We merged part of our Ebitda into the company,’ Foglia said. ‘We’re compensated now through a W-2, but we’re staying in the game with partnership interest and equity.’ ‘Accordingly, our earnout was spread over seven years rather than three or five,’ Paglioni said. For Northstar’s trio of partners, Beacon Pointe’s compensation structure included incentives for growing the company – ‘that type of structure was important to become a part of,’ Farrell said. ‘As new equity partners, we want every office across the 13 states to do well,’ Taylor added. ‘It’s not just us in Denver anymore.’
ANDREW FOERCH
As dealmaking in the RIA space rises, Beacon Pointe discusses how to stand out and stay disciplined in a crowded field.
Finding the right mix in a crowded field
When it comes to the M&A outlook for the remainder of this year, few targets are as hot as RIAs. RIA dealmaking remained strong throughout 2020 despite the pandemic, but now more sponsors get back to normal, deal volume has increased significantly. Data from Fidelity’s second-quarter report on M&A activity shows that deal volume in the first quarter increased 69% from 2020 levels. RIA deal volume leveled out with 35 deals representing $40.9B AUM in the second quarter of 2021, but the data suggests that 2021 will be a robust year overall. The report notes that many large RIAs have the desire to acquire or be acquired which means that activity in the space is likely a long-term trend. Potential changes to the capital gains tax regime are also driving activity as people try to get deals done before any changes take place. All of this tracks with what Matt Cooper, President at Beacon Pointe Advisors is seeing in the market as we head into the back half of 2021. Beacon Pointe is currently looking for acquisition targets to bring onto its integrated platform. “The M&A landscape has accelerated dramatically coming out of the pandemic,” he says. “There is a lot of capital and liquidity in the system right now. The number of private equity firms that are looking for a wealth management platform is significant. There is also a greater willingness to finance these deals which makes them easier to get done. These factors coupled with potential tax changes are driving activity.” THE NO JERKS RULE Despite the uptick in activity, Cooper says there are still plenty of potential targets to choose from but it’s important to screen carefully to make sure that everyone’s interests line up. “We like to say our first three screens are no jerks, no jerks, and no jerks,” he explains. “For us, culture is the biggest factor in our screening process. We want to make sure we’re bringing people into the organization that have the same values and goals as the existing group of partners around the country.” Beacon Pointe is one of the largest independent RIAs in the US, but Cooper says the firm isn’t interested in simply expanding just to expand nor are they looking to buy out fully mature firms as teams near retirement. Instead, they’re looking for firms that have their best growth years in front of them and are interested in using the resources of a large platform to help scale the business. “We think this is a really different approach because we’re asking our partners to brand as Beacon Pointe and we want clients to understand and expect our culture, which is very entrepreneurial – it’s growth oriented. We want to work with RIAs who think like fiduciaries and who are always focused on generating the best outcomes for clients and we want to partner with pleasant people... It’s great to partner with a team with unique expertise or capabilities but if they are disagreeable, it can make our highly collaborative environment difficult. That’s not the kind of experience we want to have associated with our brand.” DIVERSITY MATTERS, TOO Beyond screening out jerks, Beacon Pointe is also working to bring in underrepresented groups like women. The firm, which is led by CEO and co-Founder Shannon Eusey, has women in more than 50% of its leadership roles. “We feel like diversity is core to who we are and who we want to bring into Beacon Pointe,” Eusey says. “We want to work with people who are as diverse as our client base.” According to Commie Stevens, Beacon Pointe Chief Practicing Officer and the genesis behind the firm’s holistic allWEALTH® offering, Beacon Pointe launched their Women’s Advisory Institute in 2011 focused on identifying ways to bring more women to the table both in leadership roles within the firm and as clients. “Women and other underrepresented groups can often be hesitant to work with advisors due to potential disconnect on the understanding and relation to someone’s lived experience,” shares Commie. “We are working constantly to make sure our platform provides value for everyone and can provide solutions to all types of clients,” Eusey says. Recently, the firm held an event with clinicians and psychologists to discuss anxiety in children, which Eusey says is an example of what she means by providing value. “We want to make sure we’re talking about things that resonate with our clients and with our advisors. After last year, this topic was front of mind for a lot of our people,” she explains. “These are the kinds of things we do on a regular basis to be of service. We want to create unique educational experiences and build valuable relationships with our advisors and our clients.” For Beacon Pointe, these two pillars are critical to the screening process - especially in a crowded market. With deal activity on the rise, it can be easy to give in to the quick transaction, only to have both sides regret it later. “Our large platform, high-performance technology, and other resources are all really table stakes in this environment,” Cooper says. “That gives us the freedom to focus on what matters most to us and that’s helped us stand out in a crowded field. It’s also kept us disciplined in terms of who we choose to partner with.”
CEO, Beacon Pointe Advisors
COMMIE STEVENS
CPO, Beacon Pointe Advisors
MATT COOPER
President, Beacon Pointe Advisors
SHANNON EUSEY
Procyon Partners and Pivotal Planning Group started formal talks in 2020. ‘It got very, very serious very, very quickly,’ Procyon CEO Phil Fiore said. As Procyon’s and Pivotal’s leadership teams got down to brass tacks, they chose to hammer out a transaction largely on their own. While both Procyon and Pivotal retained outside counsel, neither elected to hire an investment banker or valuation consultant. One thing that made the valuation process easier was that both firms had identically structured financial statements, since they both used Dynasty’s outsourced CFO service. Instead of using pro forma financial figures, which are based on expectations for future results, Procyon and Pivotal elected to use a valuation based on Pivotal’s profits and losses. ‘We don’t need to go to Wharton to figure that out,’ Fiore said. ‘It was level-set either way,’ added Pivotal managing partner John Marchisotta. ‘We were both looking at where we were at that point in time. We could come up with projections. I think we were both growing pretty similarly, organically.’ The two firms ultimately agreed on a transaction structure in which Marchisotta and his three partners would roll their Pivotal equity into Procyon equity. Procyon would kick in cash to fund a buyout of Satty, Levine & Ciacco’s majority stake in Pivotal. After that buyout was delayed by several months, the deal closed in May.
Once a buyer and seller agree there’s a match, how do they reach an agreement on price and deal structure? The answer is often as much a psychological process as a mathematical one.
Hammering out a deal may sound like a job for lawyers and accountants, but the reality is that negotions are often deeply personal, and devilishly complicated, processes. ‘Getting an MBA was a total waste of time,’ said Matt Brinker, a managing partner at Merchant Investment Management and former top dealmaker at United Capital. ‘I certainly should have gotten a master’s in psychology, because that’s where all of the conversations fundamentally take place in getting a seller to commit to a transaction.’ To successfully facilitate an acquisition, buyers and sellers need to navigate a minefield of egos, insecurities and fears, which can often manifest themselves in unexpected ways. Just ask Brinker, who once saw a deal nearly fall apart because the selling advisor initially refused to relinquish their relatively common brand name. ‘I printed out all of the RIA registrations with their brand name and I think there were 1,000 other RIAs with the same name,’ Brinker said. ‘They laughed and said: “All right, your point is very valid.”’ A NUMBERS GAME The linchpin of any transaction is the valuation both the buyer and seller agree to, and the multiple the buyer agrees to pay based on that valuation. Many acquiring RIAs pick their price based on a multiple of the acquired firm’s earnings, which are occasionally modeled out into the future on a pro forma basis. Projections of future earnings — based on organic growth, acquisitions, or a combination of the two — are what partially generate the eye-popping valuations large RIAs have received in recent months, such as the $1bn valuation that Carson Group, which manages $17bn, got from Bain Capital for a minority stake. ‘Consolidators will look at my profit and loss and say that if I’m making $5m now, then in the consolidated environment I’m going to make $7m, and they’re going to split that or maybe even more than split it,’ said Larry Roth, former chief executive of independent broker-dealers Cetera and Advisor Group. ‘Say they give me credit for $6m, even though I only have $5m, and then they put an 18x multiple on the $6m. Suddenly it’s like: “Holy shit!”’ For serial acquirers such as Wealth Enhancement Group, Mercer Global Advisors and The Colony Group, building a valuation is somewhat formulaic. ‘The valuation in the consolidator world is mostly math-based, and the synergy and value is shared with the seller,’ said Roth, who now serves as a senior advisor for investment bank Berkshire Global Advisors. Valuation consultants such as DeVoe & Company’s David DeVoe have looked to popularize a discounted cashflow-based model, which attempts to model out a selling RIA’s cashflow and then subtract out (discount) perceived future risks from that profitability expectation, such as key person risk in a firm with only a handful of employees. What makes this more complicated is that RIAs, which are largely privately held, may have different accounting standards. Not everyone has the luxury that Dynasty Financial Partners network firms Procyon and Pivotal had of already using the same outsourced CFO service. That hitch makes good interpersonal relationships and a rapport paramount. Seasoned investment bankers, who often have longstanding relationships with certain serial acquirers, can tap into earlier engagements with acquirers’ models and use them to their advantage, driving up the price their selling client ultimately realizes. ‘We know what some of these firms have agreed to in the past and we know what the competitive landscape is,’ said John Langston, managing director of RIA investment bank Republic Capital Group. WHEN BUSINESS GETS PERSONAL Financial matters begin to intertwine with more holistic concerns as buyers and sellers contemplate the finer points of a transaction. Is the founder going to stick around for the long haul or do they want a short earnout period so they can make a quick exit? Will second-generation advisors get equity in the acquiring firm or will they become employees, who may want to change shops and take their clients with them? ‘It’s actually critical that the second generation has skin in the game,’ said Peter Nesvold, managing partner at merchant bank Nesvold Capital Partners. ‘Without the second generation, there isn’t really a lot of long-term value in the business. It’s more of a wasting asset. ‘If I’m a buyer, I want to get to know the second generation as early in the process as possible to really be excited and to convince the second generation that they haven’t lost their opportunity to become an owner at some point. Just because the business has transacted doesn’t mean there isn’t an opportunity to become an equity holder.’ Sometimes deals can become derailed by more prosaic concerns, such as job titles, technology, branding, and even websites. ‘There are things that sellers consider important but sometimes to us they seem trivial,’ said Rich Gill, a senior partner at serial RIA minority investor Wealth Partners Capital Group. ‘There’s a part of me that’s like: If you changed those things, would your clients care? Probably not. Do those things help you get new clients? Well, probably not. Do those things matter? Probably not. ‘But that’s actually not a respectful point of view. It’s not a respectful answer. These are aspects of the business that people have put a lot of time and attention and care into. You have to help them understand that the things that really matter are the relationships you have with your clients and the time and energy you’ve put into those relationships.’ Gill’s words hint at the broader emotional chasm that exists between RIA buyers and sellers. For many RIA sellers, making a deal is a once-in-a-lifetime decision, the windfall from which is the culmination of their life’s work and encompasses the majority of their net worth. For many RIA buyers, that deal is a Tuesday. The most successful RIA buyers may be the ones who have the emotional intelligence to recognize what negotiations mean for a seller and craft their approach to negotiations accordingly. ‘It’s not uncommon for someone to get scared, nervous, anxious in the process,’ Gill said. ‘That can manifest itself in all sorts of interesting ways, whether it’s a midnight call — “Oh my God, am I making a mistake?” — or that we need to sit down with somebody’s family and explain to them how it’s going to work.’ According to Roth, good negotiations are centered around an agreement on the future of the business. ‘The big hurdles seem to be: How do I know my clients are going to be well taken care of?’ he said. ‘In other words, you’re not going to be jamming products down their throat, etc. And how do I know my employees are going to be taken care of?’ The best way for a seller to navigate a process through which they would otherwise be flying blind may be to have someone around who has been there before. ‘A lot of times, you’re talking about a business that probably is worth $70m-$500m,’ said Karl Heckenberg, chief executive of serial RIA minority investor Emigrant Partners. ‘Why would you not hire someone to represent you in the sale of a minority interest?’
If finding a match between buyer and seller is comparable to a dating process, integration is what happens after the honeymoon ends. It’s often the first real-world demonstration of how the participating firms and their employees will fare as a unified team when faced with operational challenges. A rocky integration can make the most enthusiastic participants in a deal second-guess their decisions. On the flip side, truly compatible firms will find ways to march together through even the thorniest obstacles, from consolidating duplicate positions to migrating complicated tech stacks. ‘The people-fit is so critical,’ said Carrie Ohm, head of M&A for OneDigital’s wealth management and retirement division. ‘Once you figure that out, there’s a lot of grace for all the other work that has to be done to make these things happen. If the people really trust each other and want to work together, everything else just works its way out.’ PREP WORK For some firms, setting the stage for a successful integration begins long before a transaction is closed – and sometimes before the two parties have even met. At Focus Financial Partners, the process of integration applies more to M&A deals made by Focus partner firms rather than those done by Focus itself, since the parent company largely leaves acquired firms alone once a deal is done. One of the support services that Focus offers its partner firms involves preparing them for any M&A opportunities that may arise. ‘Even before a deal, we take all our firms through a merger-readiness session,’ Focus head of M&A Lenny Chang told Citywire. ‘We start with: What’s your M&A strategy? What are the criteria you’re looking for? Then you go into a very detailed list of things that may not be so specific, but it helps in defining the framework and goal of helping the firm get to a point where they’re merger-ready.’ When a deal does happen, a Focus-led project team helps manage all the changes with human resources departments, custodians and other third-party partners. Sometimes, this begins during due diligence before a deal is closed. Meanwhile, some of Focus’s more acquisitive partner firms have built out their own internal integration teams. According to Karisa Diephouse, chief operations officer and head of integrations at Abry Partners-backed serial acquirer Beacon Pointe Advisors, ‘the more you can plan in advance, the better’. Like many acquisitive RIAs, Beacon Pointe has a dedicated project plan that serves as a roadmap for its integration process. The firm has completed 21 acquisitions and integrations in its lifetime. When a deal is on the table, the first tasks for Diephouse’s integration team are to customize the project plan to fit with the needs of the acquired firm, then set up meetings with the firm’s leadership and employees to brief them on what the process will look like and how it will work. Teams that are more thorough with their communication in these early meetings tend to run into fewer problems down the road, Diephouse said. For Coldstream Wealth Management, due diligence helped the $4.3bn Seattle RIA prepare to integrate $1.2bn Paracle Wealth Advisors before the neighboring firms closed a merger in the spring. That was their biggest deal, but their prior transactions proved helpful preparation. ‘After going through this process multiple times, the most impactful thing we’d learned is the importance of both parties doing due diligence upfront – and understanding what they’re getting themselves into,’ said Coldstream managing shareholder Kevin Fitzwilson. Speaking of the Paracle deal, he said that learning the two firms used the same portfolio management software and the same custodians ‘really gives you a head start and confidence’ in putting the deal together. Those synergies enabled Coldstream and Paracle to begin working together on other projects before the merger closed, including sorting out major human resources policies and jointly preparing for an impending Washington State long-term care tax by writing and sending research to clients of both firms. That’s not to say firms with disparate systems can’t make a deal. In those cases, Fitzwilson said, ‘you can do planning upfront as far as spacing integrations out appropriately and not overwhelming either team.’ Even with prior dealmaking experience, Coldstream still opted to hire a team of executive coaches and consultants to advise the firms on integration best practices. That occurred after the letter of intent had been signed, but before the deal was closed. ‘It’s helpful having a third party that’s trained on this stuff and can try to service any issues we may be blind to,’ Fitzwilson said. NUTS AND BOLTS Even if firms are able to work together effectively from the jump, it typically takes months to fully combine their payrolls, technology systems and books of business into a single workflow. All three elements are interconnected, and decisions on one aspect of integration can affect the way the others are dealt with. Laird Norton Wealth Management chief executive Kristen Bauer is dealing with these kinds of complicated decisions. The Seattle-based RIA merged with wealth manager Filament in December, and Bauer is leading the integration process. ‘Your investment philosophy will determine what kind of performance reporting system you want, which integrates with your CRM system, which integrates in with your rebalancing software, your financial planning software,’ Bauer said. ‘You really have to think strategically about what decisions are made in what order.’ In order to stay organized, Laird Norton’s ‘integration task force’ uses a digital workflow tool called Monday.com to report what each subgroup is working on, what decisions they’d like to make, and how those decisions will impact other elements of the transition. Eight months after the merger, Laird Norton is still working through its integration of Filament’s financial planning and rebalancing software, including training employees on how the chosen platforms work. ‘It’s a long-term process if you want to do it right,’ Bauer said. ‘Patience is key.’ At OneDigital, integrations are broken down into five pathways – financial diligence, legal, people and communication, technology, and books of business – each of which gets its own team lead and project list. Financial diligence, wherein OneDigital validates an acquired firm’s reported revenue and combs through its expenses, is the first step of the process, and it happens long before closing. Transitioning employees and communicating with clients is mostly handled pre-close as well, to the extent that employees will be ‘prepared for onboarding’ by a transaction’s closing date. ‘The brand isn’t going to flip overnight. There’s a certain point in the process where it makes sense for them to start using a OneDigital email address,’ said Ohm, the company’s head of M&A. ‘If there are decisions that need to be made about the staff, like redundancies, the seller usually comes to that conclusion before we have to make a recommendation.’ Migration of the acquired firm’s tech and data platforms begins around the same time as the employee transition, but can last much longer. ‘The big things are the reporting systems – we do mandate they use our system for that – and the CRM. We want to have eyes on and transparency into their book of business, their lead generation, all the stuff that helps us forecast our growth and predict when we need to hire more people to support that growth,’ Ohm said. Finally, the transition of client accounts at OneDigital starts when a deal closes. Ohm called this the wild card. ‘It really depends on how good a handle the seller has on their clients accounts business. That can take a couple months.’ OneDigital’s retirement and wealth management division has made 25 acquisitions since January of 2020. COVID FACTOR Over the last 18 months, firms have been forced to learn how to manage integrations differently because of Covid, for better or worse. Paracle’s cofounder and managing partner Josh Harris said the interpersonal aspect of M&A has become a bigger challenge. ‘Getting everybody together and getting to know each other in a real way is hard over Zoom. From an employee standpoint, we’re trying to figure out how we can get groups together so that we can get to know everybody,’ he said. On the other hand, several executives said the pandemic has actually made their firms more efficient at integrating acquisitions. ‘You can do a lot remotely that we didn’t think we could do,’ said Laird Norton’s Bauer, ‘from cybersecurity to utilizing tools like DocuSign to take away the paper pushing.’ OneDigital’s Ohm echoed the sentiment. ‘We’re better at it all the way around. We had to figure out how to do things virtually that we used to do on site. We used to go on site to do the technology refresh. We can do all of that virtually now.’
IAN WENIK Procyon Partners closed its purchase of $400m RIA Pivotal Planning Group in May, and none of the combined company’s 27 employees were laid off. From a technology perspective, both Procyon and Pivotal used Dynasty Financial Partners’ middle- and back-office services and Black Diamond for portfolio management. However, they did use different customer relationship management software systems. Although former Pivotal employees are still adjusting to using Salesforce, the two firms say that their integration is otherwise complete. ‘I see the interaction going back and forth,’ Pivotal managing partner John Marchisotta said. ‘We were looking at investment opportunities, and things that I think we wouldn’t have thought of independently on our own are already starting to flourish. That’s really exciting to see.’ The transaction could ultimately be used as a model around the Dynasty network. Dynasty chief executive Shirl Penney said there would be other opportunities for combinations. Some network firms have begun including agreements to eventually sell their practices to fellow Dynasty RIAs as part of their formal succession plan, he said. At a recent all-hands meeting and breakfast in Shelton, Procyon CEO Phil Fiore retreated into his office and watched with admiration as Procyon and Pivotal employees mingled and even, in some cases, met for the first time. It was somewhat akin to retreating to a corner at your own wedding and taking the scene in, Fiore said. ‘I’ve got goose pimples right now thinking about it.’
After spending months getting to know potential buyers, conducting hours of intense due diligence, and artfully negotiating your terms, you have finally signed a letter of intent to sell your business. Now the real work begins.
M&As can be time-consuming, but they are crucial for business growth. Tom Haught, president, CEO and founder of Ohio-based RIA Sequoia Financial Group, reveals how he goes about mergers and provides a look behind the scenes of efficient deal-making.
It’s quality over quantity
Q: Did Covid have a noticeable impact on your M&A activities? A: The inability to meet in person slowed some conversations, especially for firms like ours that are focused on integration and cultural fit. Video is not the optimal means for building relationships. From our standpoint, it’s important to spend time in person and get to know each other. Going forward, I think the future will be a combination of video and in-person meetings. Q: Has the importance of M&As increased in the wake of Covid? A: Not in our case. We have a ten-year growth plan that started in 2017 and calls for both organic and inorganic growth. We continue to execute towards it and Covid hasn’t changed that. Most importantly, organic growth underscores the quality of our client experience. Our extensive business-to-business partnerships, for example with a regional accounting firm and Schwab and Fidelity’s advisor networks allow us to collaborate with professionals to build deeper client relationships. Q: So what about the M&A side of things? A: M&A helps us validate our governance and operating procedures. After all, firms that join us demonstrate belief in our business model. For example, we’ve made significant investments in our digital strategy. When our tech stack is an attractional feature to potential merger partners, it’s an indication that we’re on track. This can be incredibly useful feedback. Q: What are you looking for in a merger? A: The most important thing for us is cultural fit. We’re interested in firms that are focused on building comprehensive relationships, planning, asset management and multiple services, as opposed to single service delivery firms. This model aligns with our three core values: integrity, passion, and teamwork. From a revenue standpoint, we’re looking for firms that generate $5 to $25m annually. Geographically, we’re interested in firms connected to our existing footprint of Ohio, Michigan and Florida as well as areas like Baltimore, Pittsburgh, Chicago and Milwaukee where we have extensive professional relationships. We’re also interested in cities that are attractive from a demographic and wealth perspective. Charlotte, Nashville, Miami, Atlanta and Houston come to mind in that regard. Q: How long does the merger process usually take? A: Each situation is different but on average, it’s about six months. To date, all of our mergers have started with personal relationships between the principals. That foundation of trust helps us move efficiently and create a mutually beneficial outcome. Our goal is a fully integrated, durable business, so spending adequate time together to ensure a right fit is essential.We’re not built to do 10 or 20 acquisitions a year, our goal is two to three. For us, it’s quality over quantity. Q: How do you make those integrations as efficient as possible? A: We have work streams for each core area of the business, be that technology, client integration or asset management. All work streams are co-led by one person from each firm and together, they make recommendations for the targets they want to meet. We learn a lot from those mergers and embrace diversity of thought. Ultimately, we don’t want our partners to convert to totally doing it our way or us doing it their way – we want both teams to decide on what’s best for the combined firm.
President, CEO & Founder, Sequoia Financial Group
TOM HAUGHT
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