Non-Retiring Sellers Offer Significant Benefits
Source: The Marc Rosenberg Blog
The following includes excerpts, reproduced with permission, from a blog entry by Marc Rosenberg.
There are two types of mergers:
- An outright sale in which a retirement-minded sole practitioner works for a short time to transition clients and then steps down. Buyout payments start immediately, financed from the savings realized from not having to compensate the seller.
- A true merger in which the solo is relatively young, joins the buyer as an equity partner and has no finite timetable for retirement. No buyout payments are made to the seller until retirement.
I've spoken with many partners about their attitudes on these two types of mergers. Some are interested only in an outright sale because the net positive cash flow to the buyer is clear and immediate. These partners will often reject the true merger opportunity, rooted in this logic: The seller is going to expect at least as much compensation as he earned before the merger. Given this, how can a buyer profit from this merger?
A true merger has five benefits for the buyer:
- Smarter pricing.
- Additional services sold.
- Additional profits from wealth management.
- Use of excess capacity of the buyer's professional staff.
- More efficient and effective management.
The profit increases above add up to $248,000 for every year that the seller remains a partner of the buyer.
So the advice to all you buyers reading this: Look very carefully into opportunities to merge in non-retiring sellers. If this firm is a “good firm,” buyers will enjoy tangible dollar benefits.
For the complete entry, read “Why Merge in Sellers Who Aren't Ready to Retire?”
From The Marc Rosenberg Blog, February 9, 2015, blog.rosenbergassoc.com.