The phrase “You don’t know what you don’t know” rings especially true for RIAs exploring merger or acquisition opportunities for the first time.
RIAs who regretted certain aspects of a negotiation – and unfortunately sometimes the entire transaction itself – have consulted our team on numerous occasions for help in righting the ship and resolving post-deal issues. Our biggest piece of advice? Seek professional advice!
Investment bankers, lawyers and accountants experienced in all things M&A can help you successfully navigate choppy M&A waters and ensure that you achieve the best possible outcome for your business, your people and your clients. The right advisor will educate you about the most valuable opportunities that align with your unique circumstances. An experienced partner will also help you avoid common pitfalls including ambiguous or ill-defined objectives, lackluster due diligence and a disregard for the psychological impact of a transaction.
Common Pitfalls
Ignoring key aspects of a negotiation can lead to regret, misalignment and – worst-case scenario – business failure. The following are some of the more common mistakes and steps to avoid them:
A breakdown in communication can lead to mismatched expectations and post-merger issues. Make sure you have a clear understanding of the goals and objectives of the transaction and perform a thorough deep dive on every aspect of the business being acquired or merged. Important considerations include the seller’s motivations, vision for the future and the potential impact on clients and staff.
For example, if your primary goal in exploring M&A options is to stand out by offering true customization in planning software and tax services, you would seek firms that specialize in helping high net worth families with taxable investment assets retire early.
Rushing due diligence can lead to a myriad of unforeseen problems. A proper, thorough due diligence process works well to flag potential risks and issues that could impact post-merger integration, such as incompatible technology systems, conflicting business models and even legal or regulatory issues.
For example, one private equity firm surveying the industry for the right wealth management investment hired a former executive from a leading wealth management firm to help find opportunities, and eventually took a minority stake in an RIA to help support organic and inorganic growth.
The emotional and psychological impact of a sale or merger on both the seller and their staff should not be underestimated. Understandably, sellers may be tentative about ceding control of their life’s work, and employees may be apprehensive about their future with the new ownership. Buyers should proactively address these concerns and manage the transition smoothly to keep employees productive, engaged and feeling valued.
Employees may be apprehensive about their future with the new ownership.
Merging technology platforms and systems can be complex and time-consuming. RIAs should assess their current technology capabilities and develop a plan for migrating data and integrating systems, including considering bringing in project managers to ensure a smooth transition.
Client retention is a key priority during M&A transactions and worthy of its own strategy, especially during the transition period, to ensure that service standards are maintained, and the future of the firm is protected.
The lack of a robust succession plan can be a significant drawback for an RIA contemplating a sale as it can imply uncertainty about the future of a firm.
Failure to comply with regulatory requirements for M&A transactions can lead to significant legal and financial risks.
Best Practices And Mitigants
While this list of common M&A pitfalls may seem daunting to the first timer, the reality is that an experienced advisor can help you effectively manage them all. Key advice and direction to expect from an advisor includes:
- Thorough due diligence and technology stack assessment to help identify risks and concerns early while enabling the design of a seamless integration plan
- A clear succession plan to provide comfort to potential buyers in the event that the owner departs
- Advice managing the personal side of the transaction to keep employees productive and engaged, and clients considered
- Ensuring that service standards are maintained through the transaction and after the deal closes to protect the reputation and future of the firm
- Operating with transparency and thoughtfulness, as well as consulting third-party resources as needed to mitigate legal risk
“Price is what you pay. Value is what you get.” – Warren Buffett
In the words of the great Warren Buffett, “Price is what you pay. Value is what you get,” and an investment banking team can help ensure that you achieve both a fair price and realize additive, strategic value for your business.
Harris Baltch is the Co-Head of Dynasty Investment Bank.
