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Exploring M&A: Finding the Perfect Match Between Buyers and Sellers

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Buyers and Sellers

Acquirers typically fit into one of 4 profiles: Here’s how to identify which types of sellers will align best with each.

Many independent firms reach a point in their business lifecycle where they can no longer sufficiently grow or compete on their own. It’s when discussions around finding a way to gain scale and solve for succession hit a wall that firms often turn to considering a merger or acquisition opportunity. Yet finding the right M&A partner isn’t all that easy.

As a firm that represents both buyers and sellers, it’s our job to keep a finger on the pulse of the market and listen to many value propositions from prospective buyers. That said, only a handful of firms are truly poised to be meaningful acquirers in this hyper-competitive marketplace. Attributes such as being well-capitalized (given that most sellers expect a decent portion of the purchase price at closing), having a repeatable and battle-tested M&A process, a unique value proposition, and strong leadership are now almost table stakes in this environment.

The truth of the matter is that buyers and sellers alike often fail to recognize what a marriage between firms can mean for ongoing control, growth and quality of life. Therefore, it is paramount that firm owners are strategic in how they present their value to prospective sellers—and sellers come to the table prepared with clearly identified expectations of the new affiliation.

One key area that many buyers often lose sight of – which helps to focus targeting, due diligence efforts and proper alignment – is being clear and honest about what “type of acquirer profile” your firm represents to a prospective seller. It’s equally important to recognize that remaining consistent in this regard is critical; that is, once a firm persona is established, any variances can lead an organization astray of its core competencies and culture, ultimately suppressing enterprise value.

The four acquirer profiles

We find that most acquirers have traits within the following four categories—each of which offer a unique value to sellers.

Standalone RIAs

These firms are exemplified by a “one brand, one firm, one investment” approach. The most successful acquirers in this group manage more than $1B in assets and have a similar culture, operating structure, and approach as the firms they acquire. They tend to do a small number of deals, so they are typically more strategic in nature than financial. These firms often allow the seller to maintain an active voice in steering the direction of the ship and become a relatively significant equity holder, if so desired. Additionally, all back office and “business operations” will be taken off the seller’s plate.

Another important distinction for those who become an equity owner: There is still the possibility of a significant liquidity event down the road if they take on an investor or sell the firm.

Examples: Numerous RIAs which have completed a handful of deals and are embarking upon M&A for the first time.

Most attractive sellers: Principals who have a longer runway to retirement and are still looking to retain some managerial duties, and those who are primarily focused on a good cultural or local fit.

Least attractive sellers: Those who value maximum upfront money since these firms are not backed by deep-pocketed investors; those wanting more of a national footprint or brand; or anyone looking to remain fully in charge of operations, since to an extent, investment management and financial planning are standardized across the firm. Also, sellers looking to get a deal done quickly might steer clear of acquirers in this category as these standalone firms tend to be less-experienced deal makers.

Aggregators or Rollups

Firms that are very well-capitalized, prolific deal makers are known as aggregators or rollups. They excel at operations, streamlining businesses, standardizing processes, and maintaining strong communities of like-minded advisors. They will take over the entire investment management program, as well as the financial planning process—essentially everything aside from client service and business development.

Examples: Mercer Advisors, Beacon Pointe, Mariner, United Capital, and Buckingham.

Most attractive sellers: Firms that believe the acquirer has built a “better mousetrap” and are in complete lockstep with the acquirer’s values (i.e., a hard-core focus on financial planning). Also a good fit those looking for an exit strategy or to gain considerable scale and vastly accelerate organic growth, as well as those who want to step away from the day-to-day operations and just focus on clients.

Least attractive sellers: Any principal who is not ready to give up full control.

Platform Acquirers

These are organizations with many different types of businesses under one roof, but with common middle- and back-office infrastructures. They want sellers to leverage their platform and scale, yet they are all about letting businesses continue to operate in silos.

Examples: HighTower Advisors and Kestra Financial.

Most attractive sellers: Those who are seeking a partial liquidity event or looking to step back from business ownership, yet still value being involved with portfolio management, financial planning, prospecting, and even running their own P&L.

Least attractive sellers: Advisors who are close to retirement, yet do not have a succession plan; those who are seeking dedicated resources to assist with items like advanced planning, tax preparation, and investment management; and those who want to focus only on business development.

Related: A Diehard Merrill Advisor’s Journey to Independence

Financial Buyers or Investors

There’s no shortage of capital chasing the independent wealth space as countless private equity firms, family offices, sovereign wealth funds, and diversified financial services companies have made passive investments in larger scale firms. These firms offer prospective sellers the ability to take significant chips off the table by selling a portion of their business. They serve as a strategic growth partner to assist in the sourcing, structuring, and financing of sub-acquisitions, as well as provide the opportunity to retain brand and the client service model.

Examples: Focus Financial Partners, Wealth Partners Capital Group, Emigrant Partners, Merchant Investment Management

Most attractive sellers: Those who value maximum upfront cash, retaining day-to-day control of the business, minimizing change, and growing by way of acquisition.

Least attractive sellers: Advisors looking to offload the non-client service and business development processes, a firm without an internal succession plan, and firms that struggle with profitability and scale

A merger or acquisition can benefit both parties involved, provided each are equally motivated and have compatible needs and goals. By identifying the unique needs and requirements of each party, the process of meeting the right match can be far more efficient and lead to a successful marriage.

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