Dynasty Investment Bank is an institution well-versed in the consolidation and corporate finance requirements of today's US wealth management sector. Here is an article that sets out the territory.

The following article about how to execute wealth management mergers and acquisitions successfully comes from Harris Baltch, managing director of Dynasty Investment Bank, which is part of St Petersburg-headquartered Dynasty Financial Partners. Baltch delves into the details of M&A, and the consolidation trend that is happening in the North American sector. The editors are pleased to share these insights; the usual editorial disclaimers apply. Email tom.burroughes@wealthbriefing.com if you have comments and wish to respond.

As an investment banker specializing in the RIA space, clients who are considering a merger, acquisition, tuck-in, or sale, look to me for advice on a range of issues, including how to run the most efficient and effective process to achieve the best outcome. Many years and even more deals along, I have found that the most constructive way to counsel clients is to flip the lens and focus on what not to do, or, as I say, “How not to blow it.” 

There are many issues to consider and actions to take if you are considering M&A. Once you put best practices and safeguards in place, you will be better positioned for the next deal. Here are a few ways I advise clients (from the sell-side point of view) to do it right the first time and not blow it. 

If you are not prepared to the best of your ability, chances are you could blow it.
Selling a life’s work is a once-in-a-lifetime opportunity and, in our experience, such a pivotal transaction deserves the best support and guidance available. Engaging with a practiced banker, lawyer, tax counsel, advisory team, or all the above, will position you well to consider all options available to you. Without this foundation, you could blow it.

Bankers and other advisors educate as much as transact, as a large part of their job is to make sure that their clients are aware of all opportunities available to them, as well as alternatives that may not be immediately apparent. If you go it alone, you risk tunnel vision – missing out on potential opportunities – as well as running out of the bandwidth necessary to keep your business stable during a lengthy M&A process – you could blow it.

If your documents and data are not up-to-date, and your financials are not ready for prime time, you could blow it. Similarly, your ability to deliver on information requests separates real interest in doing a deal from a mere discussion. This kind of preparedness also impacts your credibility and reputation. If you are not prepared at the start and negotiations flame out, other buyers will be hesitant to engage with you. Our industry is a small, big world, and reputation really is everything.

If leadership does not drive momentum throughout the process, you could blow it.
As in sports, the most successful leaders inspire their teams to play the long game – i.e. the four quarters: getting prepared, running the deal process, entering exclusivity, signing and closing. If a leader does not drive and maintain the momentum of a deal, your team risks decision fatigue, which could force you to settle, reconsider, or be taken advantage of. Without engaged leadership helping you stay prepared, focused, and moving forward, while also managing expectations, you could blow it.

If you present unrealistic business projections, you could blow it.
If the projections that you set out for your business are not realized appropriately, if you are not at or ahead of plan, then you risk incurring a purchase price adjustment because you are not delivering on what you promised. Of course, you cannot control the market; however, as a seller, you can control your pipeline so you need to have defensible numbers that you can deliver on. If not, your valuation and reputation will be negatively impacted, and you could blow it.

If you do not have smart advice during the negotiation process, you could blow it.
Going back to my first point, bankers and lawyers are of integral value to your preparation and to the deal process overall. If you do not have someone on your side to decipher and convert offers into plain English, you could blow it. For example: What is the purchase price breakdown? Is there a down payment or a kicker? Is there a retention payment? Earn out payment? And, if so, are these based on certain growth or revenue milestones?

It is crucial to understand the offer in front of you, and if you have multiple offers, to understand the differences, or you could blow it. Are there retention requirements? Are the valuation metrics based on financial metrics at closing, or current financial statements? Does the offer credit organic growth or M&A?

If the exclusivity period is not enforced and respected, you will blow it. 
If exclusivity is breached due to lack of knowledge of the rules, ineffective counsel, whatever the reason, you could be sued, and you will blow it. Enough said.

Put your best foot forward and be authentic, or you could blow it.
As I wrote in the beginning, an RIA is a life’s work, so define and honor your value add – what you have built, what you have done to grow and maintain it – both in your proposal and when describing what the post-transaction experience would look like for the advisors, employees, and clients. If you paint a picture that is inconsistent with what the experience is going to be, then you could blow it. Unhappy advisor vibes lead to dissatisfied clients, which leads to imploding value. If you are authentic from the very first meeting through to the closing of the deal, then you not only cultivate a clear future for your RIA, but you foster strong referrals that speak to a positive transaction experience and a positive deal dynamic, setting the stage for future growth organically and through M&A.

These tips may seem simple, but, as in life, it is often the simplest mistakes that create the largest problems. The most successful transactions I have been involved in have been the ones where the RIA leadership take an open book, partnership approach with their advisors and counsel – answering questions and making themselves available throughout the process engenders a collegial atmosphere, demonstrates confidence in the business, and illustrates a genuine commitment to the future of the firm and its employees.