Succession Planning and M & A Simplified – Part 1

Amar Pandit , CFA , CFP

Amar Pandit

A respected entrepreneur with 25+ years of Experience, Amar Pandit is the Founder of several companies that are making a Happy difference in the lives of people. He is currently the Founder of Happyness Factory, a world-class online investment & goal-based financial planning platform through which he aims to help every Indian family save and invest wisely. He is very passionate about spreading financial literacy and is the author of 4 bestselling books (+ 2 more to release in 2020), 8 Sketch Books, Board Game and 700 + columns.

Many folks in our profession often confuse between Succession Planning and Mergers & Acquisitions (M&A). This has given rise to the myth that the only way to do Succession Planning is either through a Merger or an Acquisition. The reality is that Succession Planning is not the same as getting Acquired or Merging with someone. You can plan your succession at any point of time without getting acquired or without merging with anyone. There are various models and structures of Succession Planning. Applying the right model can ensure a far valuable firm, a substantially tax efficient higher pay out for you and most importantly a smooth transition and an outstanding future client experience (clients should be better taken care of than they were before). 

I do not intend to write about all the business/operating models here as there is a lot of ground to cover and it is the subject of a full- blown workshop on Succession Planning and M&A that you might want to attend (details in P.S. below). 

My objective in this post is to help you understand some of the nuances of acquisitions in the context of Succession Planning or scaling up a business. The reason I am writing this now is that I am seeing many who are looking to merge with someone or get acquired. This post should guide them to think about this area in a structured way.

There are 12 areas that are impacted in a M&A transaction whether you are a buyer or a seller. I am writing this from a seller’s perspective, but you can also look at it from a buyer’s perspective evaluating a potential business.

  1. Vision and Values
    A business is a living organism and has values that are important even if they have not been defined explicitly.

    What is the Vision of this firm? What are the values of the firm and the people in it?

    This is important because the firm’s clients are a likely reflection of the values of the firm. If you value excellence, your clients will also be the ones who value excellence. If you are all about beating markets, you will attract clients who will value beating markets as a proposition. If the firm bullshits, then you can expect clients who love bullshit.

  2. Culture
    What is the Culture of the Firm? Will it successfully integrate with the Culture of the other firm?

    Merger = Marriage

    Thus, culture is extremely important and along with values is often the key cause of failure of many M&A transactions.

  3. People

    What is the type of talent in the firm? In a services business, the real value always comes from the human capital in the business. Have you invested well in the business? Generally, most firms score very poorly on this front as they have not invested in the business at all. 

    Even in firms where there are 10-20 people, it is often the founder who is responsible for everything. She/He is the technician, the CEO and the entrepreneur all rolled in one. The recruitment is never thoughtful or intentional and often has happened because you have taken on more non- ideal clients than you can realistically handle.  Client Acquisition Skills are virtually non- existent in most firms beyond the founders.

  4. Leadership

    Is there a leadership pipeline and how will this leadership team integrate in the new environment? In our profession, there is no defined leadership or even a model to develop leaders. 

    This is also a key area of value but sadly majority of the firms are not be able to leverage on this area as they have not invested in building the leadership pipeline.

    What will the current leaders do in the new firm? Is there a role for them?

  5. Team
    How does the team operate in tough times? How well does the team play together despite differences? One of the questions to look at is – What did the team do during the pandemic? How did they support each other, and did they come out stronger during these times?

  6. Client Experience
    What is the Client Experience of the current firm? What will it look like in the future? Will the Future Client Experience be better than the current one?

  7. Processes
    Are there defined processes in the firm? How different are they in the new entity? In the case of a merger, which is the process to follow? How easy or difficult is it to institute new processes? What about training the team? There are many areas to consider here, and it is super critical for you to understand whether you are making your processes better or worse.

    This is a key lever of scale and strong world class processes always create value for a firm. However, if you are following outdated processes, then this is likely an area to fix quickly. This is a low hanging fruit for most firms, but we all know that change is difficult and painful at the start. It might seem like you are falling behind.

  8. Marketing

    How strong is your marketing? What are the marketing assets of the firm? Is there any marketing talent in the firm? Have you invested in building marketing assets? These are all areas that drive value in the firm.

    In case of Mergers, it is very important to think about the brand, communication, value proposition and so on. How will the firm be marketed in the future? Who will drive Marketing? What will be the Value Proposition of the firm?

  9. Sales
    This along with marketing drives client acquisition and thus drives growth. Firms that have developed processes and teams for client acquisitions are valued far more than books of assets and customers. As with marketing, it is very critical to define sales leadership and processes.

  10. Operations
    This is another complex area that is impacted during a merger or an acquisition. Having a solid operations team is a plus but there are generally many redundancies in this area. This is also a reflection of the kind of team members you have on board. Are they someone who can excel in other areas with training? The answer to this will determine the future of these team members in the new organization.
  11. Technology
    This along with Processes and Client Experience is an outstanding source of value creation. If you have solid processes, client experience, and technology, you have developed some of the key levers of scale. Thus, the very fact of having outstanding processes, client experience and an integrated (simple and powerful) technology stack creates value for your firm. Just by addressing these areas, you become that much more valuable to someone.

  12. Growth
    Finally, all the above come together to determine your past growth as well as your future growth. How have you grown in the past 3 years? How are you likely to grow in the next 5 years? What are the investments that you have made in the firm? Is it a real business or a book of assets or is it a collection of clients?

    It does not matter whether you are a distributor or an RIA. It does not matter whether your logo is big or small. It does not matter whether your ARN is 1 or 100000. It does not matter whether you have a private limited company or a proprietorship. Mistakenly some people think that just because they have a private limited company, they have a better business than a Proprietorship firm. Your valuation will not move an inch because of any of these things.

In my experience with many firms including some of the biggest, they have managed to build a book of Assets, a portfolio of clients and team members who are not smarter than them. Most acquisition cases in our profession are mere transfer of assets and clients. There are very rare instances of a holistic acquisition of talent, team, processes, technology, and future growth. Thus, valuation metrics are different for asset acquisition as well as for holistic acquisitions.

Most people are looking at some AMC metrics and coming to conclusions on their firm valuations. This is a naïve way of looking at it. Building real value in your business and making it transferrable is both art and science. It is time you invest in learning about building a real and a valuable wealth management firm of the future. 


P.S. We are going to cover this and loads of more stuff in our Monthly Community of financial professionals. This is purely a coaching, guidance and sharing of wisdom that you require to create more value in your firm. To know moreclick here. We are starting on May 29th, 2021.