• Christy

Winning in a Competitive Seller’s Market

Updated: May 5



Given the white-hot year 2021 was for mergers and acquisitions (M&A), there is no shortage of material or advice on what a great deal takes and how top firms can win the game. Hanover Research recently outlined the most critical criteria used to evaluate a potential M&A target: ownership structure, firm revenue and profitability, firm-owned intellectual property, product portfolio, geographic footprint and customer base/industries served. And a recent executive survey by Bain & Co. identified a strong deal thesis and top talent retention as key indicators for deal success. But the financial advisory world is a little different than the broader market. Some of the biggest firms commanded impressive pricing premiums based on scale in 2021. Although top firms often boast lower capital requirements and higher margins than other financial service sub-sectors based on their scale, the sector is highly fragmented beyond the biggest firms. The criteria for smaller deals concentrates less on infrastructure, IP and deal structure, and instead boils down to core firm fundamentals and alignment with the acquiring firm. Indeed, there is still a strong M&A thesis for smaller firms, especially as older advisors look to exit and many small- to mid-sized firms look to scale through acquisition and roll-up strategies.

Cutting through the noise, we’ve boiled things down to four major categories that advisors and their firms should be thinking about in order to improve their valuation multiples (whether they are targeting a potential exit now or sometime in the future). If it’s been some time since you’ve taken a close look at your performance relative to industry standards in these key areas, 2022 might be a great year for a refresher.

  1. Attractive & Growing Financials: AUM; revenue (recurring fee-based or asset-based being the most attractive, and large average account sizes combined with diversified assets rather than concentrated sources being critical); profitability; strong, consistent growth

  2. Market & Brand Strength: clear differentiation/niche; attractive markets served (locations, demographics, life stage, psychographics); low client acquisition costs; strong value proposition

  3. Practice Structure & Team: strong and attractive lead advisor compensation models; strong, experienced key staff; high staff satisfaction and retention; attractive ratio of staff to client households

  4. Operational & Practice Excellence: quality of planning/investment philosophy; efficient, consistent and repeatable processes; efficient sales cycle and new client onboarding; high client satisfaction; strong client and asset retention

By focusing strategic efforts in these four areas, advisors and firms can strengthen their financial and operational excellence, enhance client satisfaction and retention, improve culture and team morale, and improve the potential for commanding a premium at whatever time M&A might be a potential exit worth considering.

Christy Charise,


Founder & CEO of Strategic Advisor www.strategicadvisor.co

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