Corporate & Securities Law

A new report by Mark Hurley entitled, "Creating, Measuring and Unlocking Enterprise Value in a Wealth Manager," has raised eyebrows because it concludes that all but 7% of the nation's 20,000 wealth management firms won't extract significant value from their businesses when their owners retire.  That's because, Hurley claims, most do not have a sustainable profit model. 

Whether or not that's accurate and in connection with SNSFE's consulting advisers in their transitions and succession planning, Hurley makes a number of points that resonate.  Among them, if selling to a roll-up -- whose sole purpose the authors define as the near-impossible task of exiting in an initial public offering -- demand a prenuptial agreement that lets you repurchase your firm via a predetermined value formula if the IPO isn't completed by a preset date.  Lifewise, if selling to a bank, avoid all-stock deals because banks typically buy when their stock is overvalued.  Also ensure that the stock received can be immediately sold.  Additionally, if selling internally, assume that the new owners who previously worked for you and who will likely be severely debt-constrained, will act in their own economic self-interest as they negotiate.  And finally, if selling to a larger wealth manager, know that you have limited bargaining power.

Those with questions should contact attorneys at SNSFE.

Source: InvestmentNews