Sell to a third party, or a junior partner? There are pros and cons to each, but either one beats a dead-stick landing
I fly a lot in my work for FP Transitions—millions of miles, so far. I once asked a pilot, “If the engines of this airliner quit at altitude—say, 30,000 feet—how far can we fly before we hit the earth?” The captain said that it would vary depending upon the wind and the load, of course, but around 100 to 110 miles would be a good estimate. This is the same approach that many advisors use toward the end of their careers. Once the engines start to fade, they hold on until the end, keep the ride smooth, and make it last as long as possible. In the absence of all other choices, it’s a great plan! It is a tale of survival. In this industry, however, there are usually other, better alternatives than a dead-stick landing.
Selling Externally (to a Third Party)
Practice values have been slowly but steadily increasing over the 16 years we’ve been tracking the data, fueled in part by a strong and stable seller’s market. As mentioned, the current buyer-to-seller ratio is about 50 to 1, but we’ve never seen this result in an auction or a bidding war, at least not on our watch. Instead, advisors go about the process in a very professional manner—one that the client base tends to strongly approve of, at least in hindsight. The first criterion is quality of the match. Sellers prefer to find buyers who are mirror images of themselves, at least in terms of client base, revenue streams and investment philosophy, but larger in terms of cash flow and value (i.e., businesses tend to buy practices). The second criterion is geography. Sometimes this means a buyer close by; sometimes it doesn’t. A seller who wants to keep his or her office open, the staff employed and the same brick-and-mortar operation in place will often prefer a buyer who does not have a local presence. A seller with four months left on the lease and with no intentions of signing another lease will usually prefer a strong local buyer.