For most RIA founders, signing a letter of intent (LOI) feels like the finish line. However, in many ways, it is when the real work begins.
The legal process that follows can be one of the most demanding parts of an M&A transaction. Founders who have spent years building a business suddenly find themselves reviewing hundreds of pages of documents, negotiating unfamiliar provisions and making decisions that can have financial and personal consequences for years to come.
The good news? Many of the biggest legal pitfalls are predictable. And understanding where founders tend to get tripped up can make the process significantly easier to navigate.
Don’t Let The Calendar Cost You Money
One of the most common mistakes is over-prioritizing the closing date. Founders may enter a transaction determined to close by the end of a quarter or calendar year. But when that deadline becomes more important than the economics and client transition, the pressure can lead to costly compromises.
The pressure can lead to costly compromises.
For example, positive-consent requirements may mean certain clients need to affirmatively approve a transaction. If the process is rushed to meet an artificial deadline, founders can lose meaningful value through retention payments or earn-outs because the transition simply wasn’t given enough time.
The goal isn’t to close as quickly as possible. The goal is to close well with the right economics, a smooth client transition and a structure that works for both sides.
Not All Equity Is Created Equal
Equity is another area where founders can become overly focused on the headline number.
Receiving equity in a buyer can be attractive, particularly when the founder believes strongly in the future growth of the combined business. But new equity is not necessarily equivalent to the equity a founder currently owns.
There are different rights, restrictions, valuation methodologies and liquidity considerations to understand. There is nothing wrong with having meaningful skin in the game after a transaction. In fact, alignment can be powerful. But founders should understand exactly how much risk they are retaining and how much of their consideration is certain versus dependent on future outcomes.
‘We Run A Clean Shop’ Doesn’t Mean Diligence Will Be Easy
This is one of the most common things we hear from founders. And they may be right.
But a clean business can still have complicated diligence. The longer a firm has been operating, the more agreements, employees, clients, entities and historical decisions exist. Issues can surface during representations and warranties even when nobody did anything wrong.
The Legal Process Is Also A Relationship Process
Perhaps the most important mindset shift is recognizing that an M&A transaction is not simply a legal negotiation. It is the beginning of a relationship.
The buyer and seller may spend months negotiating risk allocation, employment terms, earn-outs and representations. There will inevitably be moments when the process feels contentious.
That doesn’t mean anyone has bad intentions. In fact, many of the hardest negotiations are simply two parties trying to protect themselves from different risks. The buyer needs confidence that the asset they are purchasing will perform as expected. The seller needs confidence that they will be treated fairly and that the value they negotiated will actually be realized.
Good deal counsel helps clients distinguish between a legitimate business concern and a provision that simply feels uncomfortable.
Good deal counsel helps clients distinguish between a legitimate business concern and a provision that simply feels uncomfortable. That requires constantly returning to the fundamental trade-off: risk versus reward.
A buyer may reasonably want protections around a founder’s post-closing employment. A seller may reasonably want consequences if those protections are exercised too broadly. Both positions can be valid. The objective isn’t to “win” every provision. It is to build a deal both parties can live with and a relationship that can survive the closing.
Choosing Your Deal Counsel Matters More Than Price
For founders evaluating legal counsel, hourly rates or total legal fees are easy to compare. They are also only one part of the equation.
The first question should be whether the attorney actually specializes in transactional M&A work. Your estate-planning attorney, employment attorney or general corporate lawyer may be excellent at what they do. But an M&A transaction is a high-stakes, specialized event. Founders should seek counsel who does this work regularly.
Experience in wealth management matters, too. An attorney who understands RIAs can recognize what is market standard, understand how industry-specific economics work and identify risks that may not be obvious to someone unfamiliar with the business.
Just as important is understanding their approach. Ask potential counsel: How do you negotiate? How do you balance advocacy with the relationship? How do you help clients prioritize what actually matters?
The best counsel isn’t simply waiting for instructions. There is a profound difference between asking a lawyer, “What do you want me to do?” and having a lawyer ask, “What are you trying to accomplish?” The latter requires judgment, experience and strategic perspective.
Your Q4 M&A Homework
If M&A could be part of your future, even if it isn’t imminent, Q4 is the right time to prepare.
Start by identifying the provisions that could materially affect your economics. Review your client agreements and understand what consent requirements could mean for timing. Take an honest look at the depth of your management team and your post-closing role. And if you haven’t already identified potential M&A counsel, interview them before you need them. Ask about their transaction experience, wealth management expertise, negotiation philosophy and how they define a successful outcome.
Most importantly, remember that a successful transaction isn’t one where you win every negotiation. It’s one where you protect what matters, preserve the relationship and walk into the next chapter with a partner you trust.
Ryan Halls is a Co-Founder and Managing Partner of Hue Partners. Brian Meegan is a Partner at Kupfer., PLLC.
This article accompanies the video series Hue Partners: M&A Confidential, available on the WSR website and on the Hue Partners website.
