How Attractive is Your Firm to a Seller?

The 6 keys to best position your firm to acquire with success

Every wealth management firm seems to fancy itself a buyer, yet most fail in their efforts to acquire, even after years of trying. So what’s missing? Where are they going wrong?

Many aspirational buyers are overconfident in what they believe differentiates them from every other firm out there and focus exclusively on what they are looking for in a seller, failing to appreciate how much competition exits and not taking an objective look at themselves from the seller’s perspective. Especially in a seller’s market such as this, it’s critical that buyers take a hard look at their own firms and honestly answer this question: Why should a seller choose my firm?

Most firms decide that they’re ready for inorganic growth and embark on the search for firms to buy without adequate preparation. If a buyer doesn’t first put “his house in order”, a successful deal is almost impossible. The following 6 criteria are key to optimizing your attractiveness to prospective sellers. They are the basis on which every seller will evaluate the worthiness of a buyer:

1. Ongoing self-assessment:

You must identify what you are looking to accomplish through acquisition. Prospective sellers are suspicious of deals that look to be solely for the sake of adding assets. But you must also be willing to identify your strengths and weaknesses; you and your partners must acknowledge what holes need to be plugged. These will be apparent to any prospective buyer even if you opt to ignore them. Skipping this step, and failing to revisit it periodically, is a recipe for disappointing results.

2. A differentiated value proposition and client service model:

Principals – especially founding members – are understandably proud and protective of what they have built. Their firms often represent the culmination of their life’s work. But since every other business owner feels the same way, it is essential to articulate and substantiate what makes your firm uniquely able to support the seller and service their clients. These differentiators may include having specific areas of expertise and resources, or certain capabilities like state of the art technology or a proven client service model that will allow an advisor to gain efficiencies, grow faster and deliver a superior client experience.

3. A robust infrastructure including professional/dedicated management:

If your firm doesn’t have the excess capacity to add both assets and advisors, an acquisition is potentially harmful. Being able to show the firm’s compensation model and role descriptions is also critical to demonstrating that the buyer is a legitimate enterprise. Firms that are professionally managed – for example, by a dedicated COO – are in the best position to do a successful deal.

4. Established Next-Gen:

Firms that have yet to solve for their continuity are at a significant disadvantage in attracting potential sellers; there needs to be a succession plan for the firm’s founders and/or current leadership that includes a strategy for developing the firm’s future leaders. Further, a firm whose business development and brand is tied solely to one person risks extinction when that person is no longer in the picture. This is a real deterrent to a successful acquisition.

5. Well capitalized:

Do you have the capital for an acquisition and are you prepared to offer cash as part of the deal structure, or are you relying on the revenue stream of the seller for the economics to work? Every seller will quickly discover if they are funding their own acquisition and may see too much risk in moving forward.

6. Demonstrated track record of organic growth:

A firm that can’t demonstrate success in growing through its own organic efforts will not be seen as a strong buyer. Turning to acquisitions as a substitute for client business development cannot deliver strong results.

It’s one thing to have a desire to grow through acquisition, yet quite another to be well positioned for success through the eyes of a seller. Taking the time necessary to make sure your house is in order before venturing into deal-making will ensure a better outcome—protecting precious firm resources as well as the legacy and reputation you have built.