For RIA founders considering M&A, the instinct is often to start with the transaction: Who might buy the firm? What would it be worth? What would the deal look like? But the more important questions come earlier: What does the business need to look like five years from now? Who needs to be on the leadership team? And what will it take to get there?
The strongest M&A outcomes rarely come from firms that wait until a transaction is imminent to think strategically. They come from founders who have spent years building businesses that can operate, grow and lead beyond them. That requires taking an honest look at strategy, talent and the gaps between where the firm is today and where the founder ultimately wants it to go.
Start With The Business, Not The Deal
One of the biggest strategic challenges facing RIA founders is understanding what the business needs next. Financial metrics such as revenue per employee, profitability, organic growth and productivity provide an important starting point, but they only tell part of the story.
Founders should also examine the organization itself. Are senior advisors spending their time on the highest-value activities? Does the team have the capacity to support the firm’s growth ambitions? Are employees stepping into leadership roles, or does every important decision still flow through the founder?
These questions become especially important when M&A enters the picture. A transaction can provide capital, resources, technology and talent, but it cannot replace a clear strategy. The better a founder understands the firm’s strengths and weaknesses, the better positioned they are to determine whether M&A is actually the right solution.
A transaction can provide capital, resources, technology and talent, but it cannot replace a clear strategy.
Build The Future Org Chart Before You Need It
Rather than asking, “Who do we have today?” founders should ask, “What leadership team will we need to become the firm we want to be?”
That exercise can reveal meaningful gaps. A founder may currently serve as the firm’s primary rainmaker, senior relationship manager and operational decision-maker. The business may function well today, but that structure may not work when the firm doubles in size or when the founder wants to step back.
Building a future organizational chart forces those questions into the open. What roles will be needed? Which capabilities are missing? Which people could grow into those roles, and where might outside expertise be required? This is also where M&A can become a strategic tool rather than simply a liquidity event. An external partner may provide capabilities the firm does not have internally, whether in business development, technology, operations or leadership. The answer does not always have to be internal succession or M&A. Increasingly, it can be both.
Your Next Generation Has A Role To Play
Succession planning often puts all the responsibility on the founder. But next-generation leaders have responsibility, too. If someone wants to become a partner, owner or executive, they need to demonstrate that they are ready for that responsibility. That means contributing to growth, thinking strategically, taking initiative and demonstrating an ability to lead beyond individual client responsibilities.
For founders, the opportunity is to create an environment where that leadership can develop through clear career paths, meaningful responsibilities, mentorship and transparent expectations. This becomes especially important when M&A is being considered. A transaction can change roles, economics and reporting structures. The earlier founders engage their next generation in the strategic conversation, the better positioned they will be to retain and motivate the people critical to the firm’s future.
M&A Can Solve Talent Gaps, But It Can’t Replace Strategy
For some firms, M&A becomes attractive because the business has reached an inflection point. The firm may have strong clients, healthy profitability and significant growth potential, but lack the leadership, infrastructure or resources needed to reach its next stage.
Founders should identify those gaps before entering the M&A arena rather than expecting a transaction to solve all of them. Separate what can be developed internally, what should be hired externally and what might be better accessed through a strategic partner.
That framework also changes how founders evaluate potential buyers. Instead of asking only, “Who will pay us the most?” the better question is, “Who can help us build the business we want to own five years from now?”
Who can help us build the business we want to own five years from now?
The M&A Homework To Do Before You Go To Market
If M&A is somewhere on your horizon, don’t start with a buyer list. Start with a strategic assessment. Before Q4 planning is complete, define a three-to-five-year vision for the firm and map the organizational structure required to achieve it. Identify the roles and capabilities you will need, evaluate your current team against those needs, and determine which gaps can be developed internally versus which may require an outside partner.
Then have the harder conversations with your next generation. Ask what they want, what they are willing to take on and what they need to develop to become future leaders. Finally, define what an M&A partner would actually need to bring to the table to accelerate your roadmap.
Build a firm that is ready for whatever comes next and use M&A as a strategic tool rather than a rescue plan.
Emily Blue is a Co-Founder and Managing Partner of Hue Partners. Catherine Williams is the Chief Operating Officer of The Ensemble Practice.
This article accompanies the video series Hue Partners: M&A Confidential, available on the WSR website and on the Hue Partners website.
