October 2021 — By Doug Moffitt
In our most recent blog, we addressed the topic of the “Why” behind selling an RIA. We challenged potential sellers to think through the reasons for pursuing a transaction, such that it becomes part of a strategic plan and not a reaction to increased buyer activity or elevated valuations.
If you are a potential buyer, it is equally important to think through the “Why” behind acquiring an RIA. Competition is fierce and somewhat concentrated across 15 to 20 active acquirers, so it is more important than ever to get clear on your motive for jumping in. In this note, we address common catalysts for acquisitions as well as the challenges firms face over the course of a transaction.
But first, the most valuable question you can ask yourself as a medium to larger size RIA is: “Why” do you need to acquire? Is it necessary? Have you truly prepared for it? Many firms with the expressed intention to acquire have never done it. It is not uncommon at conference breakout sessions, or in a study group, for several hands to go up when asked the question: “Who is in acquisition mode?” However, when asked for a show of hands for those who have made an acquisition, very few hands go up. The sometimes-unspoken question is: “Do you really understand what you are getting into by making an acquisition?” The industry is filled with stories of the painful lessons learned by firms during their first transaction.
It is important to reflect and answer these questions genuinely because the transaction process is not something to be entered into lightly. Acquisitions are hard work, and you need conviction about your “Why.”
An acquisition is a very involved process, and a successful one requires strategic thinking across the whole spectrum of business operations.
Here are just a few of the things that require attention for a smooth acquisition:
Done properly, and for the right reasons, acquisitions can be positive for your firm. However, given that the process is so involved, prospective acquirers need to get clear on their “Why” before the process begins. Being unprepared, making acquisitions for the wrong reason(s), or merging incompatible cultures can be detrimental to your firm and, importantly, the clients of both firms.
There can be a transaction on a Friday, but by Monday a seller’s team is working at a new firm, and their former clients are now clients of an unfamiliar organization. What do these people gain?
If there’s no clear value proposition for employees or clients, you must return to the guiding question: “Why” do you want to acquire in the first place? Getting clear on the value a transaction brings for both team members and clients will help motivate all parties to contribute to a successful transaction and transition.
A significant amount of time, experience, and dedication are required to make just one acquisition. This bandwidth requirement becomes magnified for those who set out to make multiple acquisitions. As such, before acquiring an RIA, be sure to genuinely examine your motives for doing so. Use the questions and insights above to help introspect about the biggest, most important question of all: What is the “Why?” behind your acquisition?
DISCLAIMER This presentation is intended for information and discussion purposes only and does not constitute legal or professional investment advice. Statements of fact and opinions expressed are those of the participants individually and, unless expressly stated to the contrary, are not the opinion or position of Harbor View Advisors, LLC (“HVA”). The information in this presentation was compiled from sources believed to be reliable for informational purposes only. HVA does not endorse or approve, and assumes no responsibility for, the content, accuracy or completeness of the information presented.
