FPA - Dallas Chapter November Chapter MeetingFPA - Dallas Chapter November Chapter Meeting ©2014...
Transcript of FPA - Dallas Chapter November Chapter MeetingFPA - Dallas Chapter November Chapter Meeting ©2014...
Succession Planning and M&A: Learning the Basics to Achieve the Ideal Transition FPA - Dallas Chapter November Chapter Meeting
©2014 David DeVoe !
©2014 David DeVoe !
DeVoe & Company Overview DeVoe & Company is the leading goal-based strategic advisor to wealth managers. We help wealth managers accelerate the achievement of their goals through our unrivaled combination of analytical rigor and depth of experience through three major service offerings. Investment
Banking Valuation / Diagnostic
– Three levels of valuation – I ($6,000) – II ($11,000) – III ($16,000)
– Custom – Quarterly Model
Management Consulting
Management Consulting
– Business Strategy – Succession and Equity
Migration – Human Capital
– Org Structure – Partnership Criteria – Compensation /
Incentive Comp – Growth Strategies – Fee Increases
Investment Banking
– Buy-Side Engagements – Sell-Side Engagements – Merger Engagements
©2014 David DeVoe !
Our Team
David DeVoe Managing Partner
and Founder
Ran Schwab’s Transition Platform and created their
Consulting Business
Cornell, MBA UC Berkeley, BA
Francine Miltenberger
Managing Director
President of Kaspick, a $4.5B RIA; oversaw sale
to TIAA-CREF
Harvard, MBA Wellesley, BA
Tim Forest Managing
Director
McKinsey, then Schwab.
Created all content for
Schwab consultants
Stanford, MBA Pomona, BA
Magna Cum Laude
Vic Esclamado Managing Director
Bank of America COO of
True North Advisors,
a $1.3B RIA
Stanford, MBA Yale, BA
Lynn Kennerly Director of Operations
Investment Analyst at Principal Financial Securities
UC Berkeley, BA Summa Cum Laude
CFA
Gwenne Bacani Senior Associate
Schwab Advisor Services Strategic
Business Development
San Jose State, BA SF State, MBA
©2014 David DeVoe !
Agenda
• Update and M&A and Succession Trends
• Lifecycle of a Transaction • Strategy and Planning • Finding the Right Candidate / Partner • Valuation and Deal Structure
• Questions and Answers
©2014 David DeVoe !
Succession Planning Options
Transition Planning
Mergers & Acquisitions
Adding New Partners
Succession Planning
©2014 David DeVoe !
Succession Planning Options
Transition Planning
Mergers & Acquisitions
Adding New Partners
Internal Succession
Acquiring Successor
Selling Externally
Succession Planning
©2014 David DeVoe !
Lifecycle of a Transaction
Planning & Fundamentals !
Candidate Search!
Deal Structuring!
Post-Merger Integration!
Right Plan
Right Match
Right Deal
©2014 David DeVoe !
Lifecycle of a Transaction
Planning & Fundamentals !
Candidate Search!
Deal Structuring!
Post-Merger Integration!
Right Plan
Right Match
Right Deal
©2014 David DeVoe !
Strategic Context
§ Business Goals
§ Professional Focus
§ Personal Aspirations
§ Economic Drivers
!North Star for Engagements
©2014 David DeVoe !
Candidates: The Universe of Options
Internal Sale
Sale to larger firm
Merger with similar sized firm
‘Acquisition’ of smaller firm
Hiring Successor
8!DEVOE & COMPANY - Confidential
©2014 David DeVoe !
Lifecycle of a Transaction
Planning & Fundamentals !
Candidate Search!
Deal Structuring!
Post-Merger Integration!
Right Plan
Right Match
Right Deal
©2014 David DeVoe !
The Candidate Profile
Technical Capabilities
+
Management Skills +
Leadership Qualities +
Ability to Acquire Firm
Successor
Profile
©2014 David DeVoe !
Typical Prospect Funnel
©2014 David DeVoe !
Lifecycle of a Transaction
Planning & Fundamentals !
Candidate Search!
Deal Structuring!
Post-Merger Integration!
Right Plan
Right Match
Right Deal
©2014 David DeVoe !
Drivers of Economic Value
Reputation
Cost Structure
Business Processes
Management Team
Growth
Trajectory
Profitability
Firm Size
Brand Equity !
Concentrated Client
Aging Client Base
Growth
Cash Flow
Risk
©2014 David DeVoe !
Valuation Techniques
Book Value Comparables Discounted Cash Flow
Wrong Potentially Dangerous
Most Accurate for RIA’s
X
©2014 David DeVoe !
DCF Analysis: Process
Firm value can be measured by calculating the present value of the net economic benefit an acquisition is projected to yield.
Expected cash flows are modeled forward and then discounted back to present value at a rate commensurate with risk. Step 1: Project Cash flows for a 5 year period Step 2: Determine Year 5 terminal value Step 3: Calculate the present value of the annual cash flows
and terminal value using the appropriate discount rate
©2014 David DeVoe !
Example of DCF
©2014 David DeVoe !
Traditional Deal Structure
Industry’s Most Common Deal Structure
• Down Payment: ~30%
• Promissory Note: ~70% • Five year period • Seller financed • Interest: Prime + ~150 bps • Re-calibrated after period to ascertain retention
• Provision that Valuation is Based on Retention
Baseline for DeVoe & Company Valuations
©2014 David DeVoe !
Valuation Techniques During the Lifecycle of a Transaction
Multiple of Revenue!
Multiple of Cash Flow!
Discounted Cash Flow!
Expert Valuation!
Time !
Deg
ree
of A
ccur
acy!
Planning & Fundamentals !
Candidate Search!
Deal Structuring!
Post-Merger Integration!
©2014 David DeVoe !
Valuation, Then Recalibration
21!
Valuation
High
Low
! Example: 100% Cash at Close
!Example: Finance over 20 years
Risk to Buyer High
©2014 David DeVoe !
Valuation, Then Recalibration
Increases Decreases
Increases
Decreases
Risk to Buyer
Valuation
©2014 David DeVoe !
DeVoe & Company Overview DeVoe & Company is the leading goal-based strategic advisor to wealth managers. We help wealth managers accelerate the achievement of their goals through our unrivaled combination of analytical rigor and depth of experience through three major service offerings. Investment
Banking Valuation / Diagnostic
– Three levels of valuation – I ($6,000) – II ($11,000) – III ($16,000)
– Custom – Quarterly Model
Management Consulting
Management Consulting
– Business Strategy – Succession and Equity
Migration – Human Capital
– Org Structure – Partnership Criteria – Compensation /
Incentive Comp – Growth Strategies – Fee Increases
Investment Banking
– Buy-Side Engagements – Sell-Side Engagements – Merger Engagements
©2014 David DeVoe !
Contact Information
David DeVoe Managing Partner Tel: 415 813 5066 Email: [email protected] Twitter: @DavidDeVoe1! DeVoe & Company 901 Mission Street, Suite 105 San Francisco, CA 94103 Website: www.devoeandcompany.com Twitter: @DeVoeCo!
©2014 David DeVoe !
©2014 David DeVoe !
Committed to creating transformational change for wealth management and investment management
organizations
©2014 David DeVoe !