By Afsar Shah
Due diligence, or the lack thereof, will ultimately determine the success or failure of any business acquisition. Before you agree to buy a book, review these five business areas of the seller (and firm’s) practice.
1. Strategic (or cultural) fit
Imagine the likelihood of success where two advisors have diametrically opposite views on such issues as the value of financial planning, investment philosophy, fee transparency, and client service standards. How easy do you think it will be for the buyer to retain clients used to and comfortable dealing with an advisor who has a fundamentally different way of looking at these issues?
2. The seller’s client base
Do these clients align with your own ideal client profile? With these clients, you need to understand potential growth opportunities, and identify potential underlying risks to the business. Specific areas of inquiry should include:
3. The seller’s regulatory risk profile
Do the seller’s workflows, processes, and procedures align with regulatory rules and expectations? I recommend selecting a random sample of the seller’s files and assessing the following as part of the regulatory review:
Clearly, the greater the regulatory risk, the less valuable the target firm will be to you as the buyer. Reviewing the seller’s files from this perspective also gives you a good sense of the seller’s approach and commitment to client care and service.
4. Operational effectiveness
Examine the seller firm’s operational effectiveness and efficiencies with respect to processing trades, client service, financial management, and human resources. Consider the following:
5. Financial health of the seller’s firm
You need to determine that a target firm is financially well managed and able to deliver stable, predictable cash flow. The higher the percentage of revenue that will continue after a deal closes, the better. Key areas to review include:
Afsar Shah, BA, LLB, is a business and regulatory coach at The Personal Coach based in Waterloo, Ont. To comment on this article or receive Afsar’s article that appeared in the February issue of FORUM, email firstname.lastname@example.org.