Aligning Stakeholder Interests in M&A - Part II
Testing for Alignment of Interest Before Setting RIA M&A Strategy
Until issues of strategic importance arise at your Registered Investment Advisory firm, it’s possible for many partners and key employees at RIAs to operate with relative autonomy and independence. Yet when mission critical issues present themselves, lack of alignment is not a desired posture. Why?
The critical path of most RIA M&A transactions involves attracting one or more qualified bidders, successfully negotiating and then closing the transaction, and finally the all important post-transaction “earn out” period. If you are joining another firm, all along the M&A process your new partners will be looking at how well your team works together:
Do you agree on the firm’s strengths/weaknesses?
Do you have a shared view of how the proposed transaction offers a Win-Win?
Is there a shared sense of professional commitment and energy?
These are big questions, and could derail a successful transaction if they are not discussed prior to the M&A process. Thus it’s critical to understand to what degree your firm has alignment of interest BEFORE you begin serious strategic discussions.
This alignment can be achieved by a thoughtful approach, asking stakeholders how they feel about key issues, such as how does the firm reach sustainable growth and can it be done organically, or do people think they need to seek equity capital.
These are just some of the questions to raise. Read “Aligning Stakeholder Interests in M&A - Part I” for more.
To get to the right answers, start with the most senior partners and work through all of the important employees. Note that it’s not advisable to approach your clients directly around issues of alignment at this point — this will come later in the process.
To help get your firm to alignment, it will help to understand motivations. All members will be impacted by at least three critical areas:
Financial
Professional
Personal
Knowing and understanding the needs/wants/demands of each individual is the beginning of understanding where the alignment of interest gaps exist and how big they might be. Note that it’s common to have a wide range of ideal outcomes among team members who are different ages, have different seniority, equity holdings and views of how active they want their professional involvement after the firm merges or acquires another.
And let’s be honest, these may not be the easiest discussions to have since decisions will be made that will affect everyone’s livelihoods. There is no “right” way to have these discussions, besides being open and honest.
Yet, the best way to test for alignment among your firm is with professionals who have been through the process many times. Having a neutral 3rd party in the room, so to speak, who knows the pitfalls and gotchas, who has your firm’s best interests in mind — for all your stakeholders — and will help ensure everyone is heard and the best decisions are made.
Advice Dynamics Partners strongly endorses the importance of Alignment of Interest for your firm before making any major strategic RIA transactions. Having worked with firms, and this blueprint, for more than 10 years, we stand ready to assist you all along the way.
Reach out to us for more information about how we can help align your firm for future growth.
This is part 2 of our article series written by Robert P. Morrow III, Senior Advisor to Advice Dynamics Partners, works with our RIA clients as an executive coach and communications expert. When senior partners at a wealth advisory firm need an effective communication strategy to explain an upcoming merger to employees and clients, Rob is our go-to. Aligning interests among all stakeholders on a strategic transaction is paramount. Rob helps gain alignment through a thoughtful, well-crafted process honed over decades.