A Step-By-Step Guide to Understanding RIA M&A Transactions

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The volume of M&A transactions involving registered investment advisors (RIAs) has increased tremendously in the past five years. This allows founders and other shareholders to monetize the value of their ownership stake and potentially join another firm to supercharge the growth of their practice. For sellers, it’s an opportunity to add clients, talent, and service offerings to promote growth of their RIA firms.

But the process of RIA M&A transactions is complex. It behooves buyers and sellers to familiarize themselves with the steps involved if they are interested in exploring such transactions. In this article, I provide a high-level overview of the various stages of an RIA merger, sale, or acquisition transaction and detail key considerations for buyers and sellers during each stage including a discussion of the key legal documents that are typically prepared and negotiated in connection with such transactions. For a discussion of how to navigate the sale of a minority interest in an RIA, click here.

Assuming there is interest between the buyer and seller, after preliminary discussions the parties typically enter into a mutual non-disclosure agreement (NDA) to allow for more in-depth discussions and due diligence to ensure that there is a good fit for a potential transaction. The NDA is crucial for protecting the interests and proprietary information of both entities involved in the negotiation because both sides will be sharing sensitive information. Typically, the NDA will restrict the parties from using or disclosing confidential information shared by the other party for a purpose other than in connection with exploring the potential sale, merger, or acquisition. Important things to negotiate in an NDA include what is included within the scope of “confidential information” protected from use and disclosure; the length of the restrictions on the use and disclosure; and what the parties must do with the disclosing party’s confidential information after termination. Even if the parties have signed an NDA, the seller may not be permitted to share certain information about its clients, depending on what is contained in the seller’s privacy policy.