Very few financial advisors - if any - would argue the past six months have not been a tumultuous time for advisors. The markets have experienced a lot of turbulence and changes, and we are starting to see this being reflected in quarterly and annual revenue numbers. For many independent advisors currently conducting acquisitions, this has caused them to ask the question of if now is still a good time to acquire a practice, or if it would be better to wait until the market has rebounded.
We are firm believers that whether markets are strong or not, a solid acquisition is always a solid acquisition. Let's take a deeper look at this statement.
First, if you are in acquisition mode, you understand the benefits of an acquisition. Often, these benefits include increased revenue, enhanced staffing capabilities, expansion into new markets and/or demographics, and a faster growth rate than organic expansion. These benefits are still going to be in place, even in a down market. Those staff members still have the same qualifications for any staffing capabilities that you may have been acquiring. The client book remains the same, allowing you to expand to new markets and demographics.
Let's take a look at your concerns: the markets are down. Concerns about this and whether to still conduct an acquisition are likely to be centered around either the fact that clients may be unhappy or that the revenue of a practice is temporarily down. If clients are unhappy, an acquisition allows the perfect opportunity to connect with clients, address any concerns they have, and build an even stronger foundational relationship. In regards to the revenue of a firm being down, this is the time to really examine how you are structuring your purchase agreement and what provisions you are putting in place to protect yourself. We frequently see claw-back provisions based upon meeting a certain percentage or threshold of trailing 12-month revenue. Having provisions such as these in place will help protect yourself in case revenues are less strong that initially anticipated.
What do you think - have you had concerns about acquiring a practice due to the markets, or do you stand with our belief that a solid acquisition is always a solid acquisition?
