How to Handle Unsolicited Offers for Your RIA

M&A activity in the RIA industry continues to grow and is showing no signs of slowing down.1 New buyers continue entering the market to compete for quality RIA acquisitions despite a shortage of active sellers. In such a competitive M&A environment, it’s very possible that you’ll be approached by a larger RIA interested in acquiring your firm.

Even if you don’t plan on selling your RIA any time soon, you should be prepared for how to handle conversations with interested buyers. Larger acquirers are often willing and able to make compelling offers, especially with so much competition for quality acquisition targets. While it’s important to be cautious about what kind of information you share with interested buyers, we recommend keeping an open mind so you don’t miss out on a golden opportunity.

Protect Yourself

Protecting yourself and your RIA should be a top priority when someone approaches you about a potential sale. When you’re first contacted by a buyer, it’s important to keep the initial conversation light on details and refrain from discussing your clients, employees or other sensitive pieces of information. If you’re interested in learning more about the opportunity after an initial conversation, you’ll want to contact your attorney about drafting a confidentiality agreement for the buyer to execute before continuing your discussion.

A confidentiality agreement, also known as a non-disclosure agreement, is a key document that is usually signed during the early stages of the M&A process before parties begin exchanging confidential information about their companies. The purpose of such an agreement is to deter the use or dissemination of your company’s confidential information by the buyer in a way that could negatively impact your business.

Evaluating the Buyer

When buyers first approach an acquisition target, their first objective is usually to find out whether the owner is interested in selling and whether the target is a potential strategic and cultural fit for their firm. While the buyer will have plenty of questions to ask about your RIA, you should be prepared to ask your own questions about the buyer so you can make a fully informed decision about whether to enter serious discussions about selling. Here are some things to consider during your initial discussion with an interested buyer:

Is there a strategic fit?

  • Do you share the same investment philosophy?
  • What tools and technology do they have to help you better serve clients?
  • Do they have support staff and operational infrastructure to help save you time and allow you to focus more on growing your business?
  • How similar is your clientele?

Is there a cultural fit?

  • What are the firm’s core values?
  • What is the firm’s organizational structure and management leadership style?
  • How do they treat employees?
  • Are there advancement opportunities for your existing employees?

What’s the buyer’s M&A track record?

  • How many acquisitions have they done in the recent past?
  • How do they typically like to structure their transactions and why?
  • Do they have a history of making fair offers?
  • What are integration expectations and have they had integration issues in prior acquisitions?

Depending upon the size of your RIA and the size of the buyer, you may also need to find ways to verify whether the buyer has the financial resources to complete an acquisition. Smaller firms typically have less cash on hand and you want to be confident that the buyer will be able to secure financing to complete an acquisition. You don’t want to waste the time and energy of going through the M&A sale process if the buyer can’t come up with the funds to close a deal. If you are interested in selling, don’t hesitate to ask for references and seek the opinions of other advisors about the buyer’s firm.

Bringing More Buyers to the Table

One reason why many buyers make unsolicited acquisition offers is because they are searching for exclusive opportunities in which there is no competition from other interested parties. Without competition, buyers don’t have as much incentive to put up their best offer and have more negotiating leverage, knowing the seller doesn’t have a fallback option on the table. As a result, sellers who enter into negotiations with a single buyer often leave money on the table and are more likely to agree to less favorable terms.

One way to avoid such a fate is to engage an experienced M&A advisor with expertise in the RIA industry. If you receive an unsolicited offer, your M&A advisor can help guide initial discussions and ensure you’re protected when discussing confidential information. Often the mere presence of an M&A advisor shows the buyer you are serious and can even create the perception that there are other interested buyers. They can also use their relationships and resources to find additional buyers that could be a potential fit for your firm and help you evaluate each potential buyer.

By bringing more buyers to the table, M&A advisors can create a competitive environment in which each buyer is forced to put forth their best offer in an effort to outbid the others for the deal. This gives the seller an advantage when negotiating transaction terms, such as deal structure, the amount of cash at closing, contingent payments and other aspects of the purchase agreement.

Know Your Value

It will be hard to know whether any offer you receive is fair unless you’ve obtained a business valuation for your RIA. Advisors who enter into discussions with a buyer without knowing the fair market value of their RIAs will be at a severe disadvantage in negotiations, especially without proper representation.

Even if you don’t plan to sell in the near future, obtaining a valuation is a good idea, especially if you plan to use the proceeds from the sale of your firm to fund your retirement. Obtaining a valuation now will help you determine how close you are to achieving your goals and provide insights into ways to start improving the value of your RIA.

Defining Your Succession Planning Goals

Succession planning options typically come down to either an internal succession or an external sale. Approximately 75% of advisors expect an internal successor to take over their RIA, but in reality, many of them will end up selling their firms to an external buyer due to a lack of next-generation talent across the industry.2 Therefore, even if you expect someone to take over internally, you may want to keep an open mind if you are approached by an interested buyer. Being part of a larger organization may present more opportunities for your next-generation talent as well as provide your clients with a broader scope of services.

Developing an effective succession plan should at the very least involve outlining your financial goals and an expected date for retirement. Knowing these things as you discuss a potential sale with a buyer is critical, as deal structure and purchase price will directly impact whether you are able to achieve your goals if you decide to sell. Additionally, knowing what your RIA is worth now will allow you to set more realistic goals and set a plan in motion for achieving them. Lastly, surrounding yourself with trusted advisors, such as your attorney and an experienced M&A advisor will also ensure that you are protected during the sale process and are able to make the most of unexpected opportunities.

1 Barron’s. Expect a Busy 2018 for RIA Mergers. 14 March 2018.
2 Focus Financial Partners. Succession Planning: Protecting and Enhancing the Future of Your Business.

This document is for informational use only and may be outdated and/or no longer applicable. Nothing in this publication is intended to constitute legal, tax, or investment advice. There is no guarantee that any claims made will come to pass. The information contained herein has been obtained from sources believed to be reliable, but Mariner Capital Advisors does not warrant the accuracy of the information. Consult a financial, tax or legal professional for specific information related to your own situation.