Growing through acquisition_Eighty20_Advisors

Growing a Financial Planning Business through acquisitions.

Experience and Theory.

Listing and Brokerage services for Buyers and Sellers of financial services practices.
Platform for recruiters and applicants providing exposure and access to positions within
growing firms.
www.eighty20exchange.com

Consulting, Business Development, Practice Efficiency and Succession Plan preparation.
www.eighty20advisors.com

Introduction

For an acquisition to be possible a
buyer and a seller must agree on
terms.

Is your counter party one of the
four ?

Most deals have a deferred
component and require a longer
relationship with the buyer/seller.

Do not reproduce without prior consent. Copyright © 2000-2012 Eighty20 Advisors, LLC. All rights reserved

Food for thought.
For a buyer the Primary decisions are.
• Why am I considering to buy a firm
• When would be a good time to take on the risk
• What can I afford to pay and how
• Who should I target to buy

For a seller the primary decisions are:
• When should I retire
• Who can I sell to
• What is the business worth
• Why am I retiring


Buyers Vision
• Do you have one
• What is it?
– Merge with another local company and stop.
– Buy a company that adds skills to my current
practice.
– Buy assets and consolidate in one location.
– Acquire multiple practices and create a multi
$100M AUM business operating in the financial
services industry.


Why Buy ?

• Faster growth
• Leverage operational resources
• Acquire skills and or knowledge
• Broaden demographics of aggregate book
– Average client age etc…
• Capitalize on economies of scale – payouts
• Consider your own exit strategy and
expectations.

Criteria & Considerations

• How big a book do you want to buy?
• What geography are you comfortable with?
• Technology is a consideration.
• Are you comfortable with added employees?
• Good planners are not always good managers.
• What is your current practice good at?
• Are you looking for more of the same client types?
• Are you trying to add a particular skill set?
• What is your current operational capacity?
• What is your funding capability?


Process Steps


Seek and Search

It is unlikely the first opportunity will meet your criteria
so having a pipeline is a key success factor.
• Existing BD/GA/IMO.
• Business brokers.
• Specialist brokers.
• CPA, Lawyers etc.
• Other Industry participants.


Introductions

• Initial Introductions and statement of interest.
• Important to establish a rapport.
• This is a sales pitch to a point of the seller
making a commitment to disclose.
• Philosophical match in YOUR mind??


CDA

• Confidential Disclosure Agreement.
• Mutual – you want protection as much as they do.
• If Possible get a 3 way, seller-buyer-BD.
• Experience has shown the seller will NOT submit data
for pre-registration until deals are signed making the
transition process more complicated.


Fact Find

• High level review of Sellers Book of Business.
– Asset types
– Client ages
– Asset structures [VA, surrenders etc]
– Income history
– Income streams
– Income projections


Valuation
• Factors affecting Valuation.
– Markets served and Practice structure
– Sole Proprietor, Partnership or Inc.
– Customers and demographics
– Income structure and streams
– Technology adoption and data integrity
– Measurement of profitability
– Firms financial history
– Systemized operations or Ad hoc
– Suitability of buyer [Are they similar to you?]


Firm V Founder

• Value is derived from a measure of revenues/income and
a factor [X].

Value = X * Revenue/Income
• Understand the associated risk in using “X” is crucial to
both buyer and seller

ue
ven
Re

Time


Firm V Founder

• Is your firm “Institutionalized” ?
• If you as the founder/seller were to leave
tomorrow would the revenues be immediately

Un-stable
and irreparably impacted?

Founder

Stable
Firm


Factors affecting
valuation

Each facet of a firm can add value or
it can detract. It is key to understand Other business assets
that the overall firm value is a
constituent of many parts and each Staff
should be measured in a valuation
process. Technology and data integrity

Average age of clients

Assets and structure

Non recurring revenue

Recurring revenue

-VE 2x 1x 0 1x 2x
+VE


Provisional Offer

• Valuation and Terms.
– Valuation models are many
– Terms and Structure, be fair, be realistic.
– Include a “Claw Back” for assets lost and incentive
for asset growth.
• If accepted – draft Letter of Intent.
– Offer confirmed “subject to….”


Due Diligence

• Reg S&P – understand and beware.
• Firms performance v market.
• Technology adoption and data integrity.
• Business management in general.
• Demographics.
• Operational expenses.
• Consistency of financials.
• Client count and revenue distribution [Pareto]
• Meet and greet key staff.

Confirmed Offer

Assuming all is well after due Diligence.
•Confirm offer and initiate APA contract drafting.
•Expect 3-5 iterations of docs.
•Close.
•Now the work begins….


Execution
• Expect the unexpected. Don’t Panic.
• Allocate resources internally.
• Setting client expectations is essential.
• COBD, NAF, AIM +++ for every account.
– No Bulk transfers.
• Timely client responses are essential.
– Cash flow depends on them.
• Plan, Prepare and Pursue.
• Bring in short term resources.
• Meet and greet key clients.

Execution

• Letter from seller to clients
– Calls and meetings with top 20%
– Transition paperwork packet
• Letter of introduction from buyer
• Calls, calls, calls.
• Thank you letter
• 4-6 months out – follow up and questionaire.


Value progression

5
Multiple Expansion

1
200 400 600 800 1000
Total Book ($M)


Profit Scales with Size

Gains in Efficiency Revenue Growth

Income
$
Expenses projected

Time/AUM aggregted


Risks/Mitigation

Risk Mitigation

Expansion complexities cause Partition the on-going customer
loss of customer base care and the integration team

Acquired customer base is lost Retain the existing manager
through the transfer process through financial incentives for a
(industry average 91% retained) measured period. 4-12 months.
Integration costs squeeze cash Budget for and regularly review
flows with investors.
Market Collapse No investment immune


Conclusion

• The financial services industry is consolidating.
• Growth by acquisition is a viable growth
strategy.
• Significant challenges exist but diligence and
execution planning can mitigate the risks.
• Returns can be substantial.


Introduction
Founded in 2012 by Allen Duck and David Cunningham.

•Allen has a 25+ year career in business most recently acting COO for an
RIA in PA – headed the acquisition strategy.
•Founding board member for CPG, the succession engine within CIR.
•Author and speaker on industry trends and dynamics in the succession
space.
•David has a long career in business 40+ years, creating 6 separate
companies and multiple successful exits.
•Experienced in fund raising and business development.
•Eighty20 Advisors genesis was a quantified recognition that the financial
services industry has a significant age bias, fragmented service models
and is lacking a natural regenerative dynamic.
•The firms objective is to bridge the void between the retiring advisors,
those qualified to buy, and lastly, out reach to the next generation.

Thank you
www.eighty20advisors.com
www.eighty20exchange.com
970.325.3820 Office
970.412.6759 Cell

Growing through acquisition_Eighty20_Advisors

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