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M&A Considerations Part 2 - When the Seller is Staying

By Ray Sclafani | January 14, 2022

One of the critical factors you’ll need to consider as a buyer is whether you’re acquiring the business with the intent of having the acquiree exit the practice, or whether you intend to fold them into your firm in some way, shape, or form. In fact, what you’re looking for in terms of deal metrics may be very different based on that overarching objective.

In M&A Buyer Considerations (Part 1) we focused on deals where the seller was walking away—whether to retire or to pursue some new business venture. Far more complicated and trickier, however, are acquisitions where the seller will be transitioning into your business.  

Partnership criteria

As a buyer, you’ll need to think about your firm’s partnership criteria and how the advisor whose business you’re acquiring stacks up against those requirements. Off the bat, most advisors would probably say “hey, I wouldn’t be exploring a deal with this person if they weren’t partner material,” but it’s not at all uncommon for buyers to want to get a deal done so much that they tend to overlook shortcomings and potential red flags. So, make sure you’re both detailed and articulate in structuring an agreeable probationary period.

There are three main considerations you’ll need to think about the individual and their future role in the company:

  • What if any role will they play as an advisor going forward?
  • How well does their advisory and service delivery approach synch up and align with your own?
  • What new skills, talents and/or processes do they bring to the table (e.g., a hedge fund they run, or a more comprehensive planning process) that could potentially enhance your firm?

You especially need to be clear about the financial advising component, the technical skills they possess and their ability to deliver great advice. Assess whether or not they have strong business development expertise and client acquisition skills. Think long-term strategically as a buyer. Is your firm more in need of a strong advisor or a rainmaker? And don’t overlook their leadership skills. Are they good identifiers and developers of talent as well as mentors? Are they good at making strategic decisions? Are they great builders of a positive, inclusive, and supportive culture?

Ideally, you’ll be able to tick all the boxes in the affirmative. Only then should you turn your attention to the quality of their earnings (see M&A Buyer Considerations Part 1) and the particulars of the deal structure. You’ll likely want to explore several integration solutions. For instance, might there be a transition period where they tuck-in as a fully supported stand alone for a year or so while you provide back office, compliance and HR support. It’s a way to provide all parties with an opportunity to gauge their comfort level. Then, when the time is right, the two firms can fully merge with minimal disruption.

Perhaps most importantly, before even starting to explore the M&A landscape, you need to understand that it’s an investment of time. Know up front that most potential deals—no matter how good they might look on paper—won’t work out for one reason or another. But there’s no arguing that acquisitive growth can be one of the fastest routes to increased profitability.


Coaching Questions from this article:

  1. What factors and qualities would make a firm an ‘ideal fit’ for your existing organization as either a merger or acquisition candidate?
  2. How would you gauge your team’s current capacity and appetite to take on the challenges of acquiring and integrating another business? And are their steps you can begin taking now to improve that capacity?
  3. In addition to client base diversity, next gen client relationships and strong team engagement, what other factors would you consider important measures of the quality of a firm’s earnings?

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Topics: Mergers and Acquisitions

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