Practice Development | PLANADVISER September/October 2017

Deciding to Team Up

In spite of doubts or questions, sometimes only an 'M' or 'A' will do

By Karen Wittwer | September/October 2017
Art by Yinfan Huang

It may start as a nudge of discontentment, a sense your firm could be something more. But at some point, you find yourself thinking about it constantly: joining forces with another firm to make your business grow.

According to Rick Shoff, managing director of the adviser group at CAPTRUST, in Doylestown, Pennsylvania, persistent thoughts like those could mean it’s time to get intentional. And Shoff should know, having merged his own firm with CAPTRUST in 2006 and taken part in 25 acquisitions since—the latest being Tampa-based Captrust, which split from the larger firm in 1998.

When mulling how to grow his firm, Shoff knew just affiliating would not be enough. “I wanted to find somebody likeminded to go all in with, and then we could go about building something special.”

That was his “catalyst,” he says, and all advisers looking to team up should have one. Typical catalysts include wanting to increase the firm’s capacity to grow, to improve its client value proposition and revenue, and to enhance opportunities for employees. Those, plus the realization that “for that next level of growth, they could get there quicker and more effectively by merging or being acquired,” he says.

Catalysts also must be strong and “undeniable,” as the acquisition process is intense; a seller should seriously assess his goals and motivations before any contract signing occurs.

To that end, Shoff stresses the need for preparation—the more that is done upfront, the better the chance a transaction can occur. CAPTRUST likes a “mutual assessment” approach, “where it doesn’t feel like there’s a buyer and a seller, but rather two buyers,” Shoff says. Parties should discuss topics such as culture, value propositions and business model, to look for synergy.

But even when all the facts line up, a deal may still falter. “These intellectual conversations—‘Will the value of my firm grow more with you vs. on my own?’ … always end with an emotional decision,” Shoff points out. In fact, in pretty much all of CAPTRUST’s acquisitions, the same pattern occurs. “It’s like you’re sprinting toward the finish line, then a bungee cord around your waist snaps you back,” he says. Just short of signing, the seller delays, maybe waiting six months to revisit the deal.

The status quo is to blame, says Shoff;  the owner does not need to sell. “Everybody’s had a great business; they didn’t necessarily have to do anything. If they’re not ready for that moment, it’s easy just to kick the can.”

So warning them early on is key. “I’ll say: ‘After we get through the due diligence and you check every box, there’s one box you can’t check. It’s the emotional part of giving up your baby, of having been your own boss, and now you’ll have multiple partners’ … so when they get to that moment, they’re better equipped to work through it.’”

To help, the selling firm can ask itself feelings-based questions such as: What makes you most proud of your business now? What would you do if money weren’t an issue? And, what gives you the most pause when you consider merging with the other firm? Then tell the buyer your answers, Shoff says. That way, it can point out where your concerns are universal, something a first-time seller might not know.

Mutual vulnerability is even better, he says, as it builds the relationship. And relationship is the basis for any such deal.