What Does a Four Million Dollar Transaction Look Like?

In the world of small business lending we encounter all manner of deals, each with their own complexities. Shining a light on what has historically been an obscure option for advisors is one of our goals at Live Oak Bank. To that end, I want to share some financing scenarios to consider as you look to grow your firm.

Scenario One:

An existing hybrid RIA/BD with $600 million in AUM is going to tuck-in an advisor team with $613 million in AUM.

The first step is to calculate the historical cash flow and revenues of both the existing RIA and the Advisor Team to be acquired, and then create three years of combined projections. The key question we ask is: does the projected cash flow cover the amount needed for debt payments.

In this scenario the debt would be a $4,000,000, 10 year term loan, with an interest rate of prime plus 2.00%, with no prepayment penalty.

Typically the Acquiring RIA would structure payouts to the new team after a signing bonus: 40%-45% payout in years 1-4, and then the final 55% - 60% payout thereafter based on AUM.

Loan Proceeds could be broken out as follows: $1,380,000 to build-out new leased office space. And $2,620,000 – signing bonuses and salaries to new advisors, working capital and closing costs.

While this scenario might seem simplistic, it is fairly representative of the types of deals we see on a day-to-day basis.