00FFrrnnttHHoowwTTooVVaallggooooggllee..iinndddd aa 77//1122//0066 22::0099::3333 PPMM How to Value, Buy, or Sell a Financial-Advisory Practice ALSO BY MARK TIBERGIEN 1 (WITH REBECCA POMERING) 2 Practice Made Perfect: The Discipline of 3 Business Management for Financial Advisers 4 5 ALSO AVAILABLE FROM BLOOMBERG PRESS 6 Virtual-Office Tools for a High-Margin Practice: How Client-Centered 7 Financial Advisers Can Cut Paperwork, Overhead, and Wasted Hours 8 by David J. Drucker and Joel P. Bruckenstein 9 The New Fiduciary Standard: The 27 Prudent Investment 10 Practices for Financial Advisers, Trustees, and Plan Sponsors 11 by Tim Hatton, CFP, CIMA, AIF 12 In cooperation with the Foundation for Fiduciary Studies 13 14 Deena Katz on Practice Management: 15 For Financial Advisers, Planners, and Wealth Managers 16 by Deena B. Katz 17 Deena Katz’s Tools and Templates for Your Practice: 18 For Financial Advisers, Planners, and Wealth Managers 19 by Deena B. Katz 20 21 Building a High-End Financial Services Practice: Proven Techniques for 22 Planners, Wealth Managers, and Other Advisers 23 by Cliff Oberlin and Jill Powers 24 In Search of the Perfect Model: The Distinctive Business Strategies 25 of Leading Financial Planners 26 by Mary Rowland 27 28 A complete list of our titles is available at 29 www.bloomberg.com/books 30 31 32 ATTENTION CORPORATIONS 33 34 THIS BOOK IS AVAILABLE for bulk purchase at special discounts. Special editions or chapter reprints can also be customized to 35 specifications. For information, please e-mail Bloomberg Press, 36 37 press@bloomberg.com, Attention: Director of Special Markets or phone 212-617-7966. How to Value, Buy, or Sell a Financial-Advisory Practice B A Manual on Mergers, Acquisitions, and Transition Planning MARK C. TIBERGIEN and OWEN DAHL BLOOMBERG PRESS NEW YORK © 2006 by Moss Adams LLP. All rights reserved. Protected under the Berne Convention. Printed in the United States of America. No part of this book may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photo- copying, recording, or otherwise, without the prior written permission of the publisher except in the case of brief quotations embodied in critical articles and reviews. For information, please write: Permissions Department, Bloomberg Press, 731 Lexington Avenue, New York, NY 10022 U.S.A. or send an e-mail to press@bloomberg.com. BLOOMBERG, BLOOMBERG LEGAL, BLOOMBERG MARKETS, BLOOMBERG NEWS, BLOOMBERG PRESS, BLOOMBERG PROFESSIONAL, BLOOMBERG RADIO, BLOOMBERG TELEVISION, BLOOMBERG TERMINAL, and BLOOMBERG TRADE- BOOK are trademarks and service marks of Bloomberg L.P. All rights reserved. This publication contains the authors’ opinions and is designed to provide accurate and authori- tative information. It is sold with the understanding that the authors, publisher, and Bloomberg L.P. are not engaged in rendering legal, accounting, investment-planning, or other profes- sional advice. The reader should seek the services of a qualified professional for such advice; the authors, publisher, and Bloomberg L.P. cannot be held responsible for any loss incurred as a result of specific investments or planning decisions made by the reader. No ideas or examples offered in this book should be construed as legal advice. The authors are not licensed or qualified to provide legal advice, and individuals or entities contemplating a transaction should engage qualified legal counsel to review proposed transactions and to draft all documents. First edition published 2006 1 3 5 7 9 10 8 6 4 2 Library of Congress Cataloging-in-Publication Data Tibergien, Mark C. How to value, buy, or sell a financial-advisory practice : a manual on mergers, acquisi- tions, and transition planning / Mark C. Tibergien and Owen Dahl. -- 1st ed. p. cm. Includes bibliographical references and index. Summary: “A manual for financial advisers offering complete guidelines and techniques on the key issues related to valuing practices for sale, mergers, acquisitions, partnership, and transition planning. Special emphasis is given to ways to maximize and build value in a practice and to vital information related to valuation approaches, the marketplace, nego- tiations, due diligence, intermediaries, and buy-sell agreements”--Provided by publisher. ISBN 1-57660-174-9 (alk. paper) 1. Financial planners--United States--Handbooks, manuals, etc. 2. Investment advi- sors--United States--Handbooks, manuals, etc. 3. Business enterprises--Valuation--United States--Handbooks, manuals, etc. 4. Sale of business enterprises--United States--Hand- books, manuals, etc. 5. Business enterprises--United States--Purchasing--Handbooks, manuals, etc. I. Dahl, Owen. II. Title. HG179. 5. T527 2006 338.8'30243326--dc22 2006009550 Acquired by Jared Kieling Edited by Mary Ann McGuigan To my parents, Co and Marian Tibergien, for indulging me just enough to pursue my dreams. —MT To Mom and Dad, for teaching me that client service is not a concept, but a calling. —OD Contents ACKNOWLEDGMENTS ix INTRODUCTION xi Part I Defining Value 1 Uncovering True Worth 3 2 Evaluating Fiscal Health 13 3 The Income Approach to Valuation 29 4 Other Approaches to Valuation 45 Part II Assessing Value 5 The Multiple-Partner Firm 55 6 The Solo Practitioner 79 Part III Coming to Terms 7 The Art of Negotiation 97 8 The Seller’s Perspective 107 9 The Buyer’s Perspective 121 10 Getting All the Way to Yes 141 Part IV Ounces of Prevention 11 Essentials of Due Diligence 161 12 Antidote to the Postmerger Meltdown 167 13 Making It Legal: A Sequence of Steps 179 Part V Inside Stories 14 Partnering: A Complex Choreography 197 15 Buy-Sell Agreements: The Path to Happier Endings 213 Part VI The Marketplace 16 Making the Match: Intermediaries 225 17 Finding the Ideal Buyer 235 18 Building Value: The Firm That Sells Itself 257 APPENDIX OF SAMPLE DOCUMENTS 277 INDEX 323 This page is intentionally blank. 00FFrrnnttHHoowwTTooVVaallggooooggllee..iinndddd bb 77//1122//0066 22::1133::4411 PPMM Acknowledgments A REFERENCE BOOK that tackles a complex topic requires the help of many people, and How to Value, Buy, or Sell a Financial-Advisory Practice was no different. We would like to acknowledge the valuable guidance on legal issues we received from Tom Giachetti, who heads the securities practice for the law firm of Stark & Stark in Princeton, New Jersey; Dick Fohn, a partner at Moss Adams, for his guidance on the tax issues; and Jet Wales, a principal at Moss Adams Capital, for his insight and wisdom on the elements of negotiating and struc- turing a transaction. We owe a special thank-you to Mary Ann McGuigan, our editor at Bloomberg Press, for the extraordinary patience she showed as we attempted to pull our thoughts together and put them into words and for her careful attention to how we phrased each thought. Jennifer Long and Cathleen Mohr, two key administrative people on our team at Moss Adams, also deserve recognition for their dili- gence in herding us toward the goal and in checking our work and challenging us on our wording at each stage. Stephanie Rodriguez and Sarah Denkewalter made important contributions to the development of our case studies and examples, and we greatly appreciate their work. We’ve benefited from working with many interesting clients and friends in the business who have gone through complicated transactions and who have provided us with important insights into how best to approach each deal. Rusty Benton of Wealth Trust, Liz Nesvold of Berkshire Capital, and Scott Roulston of Fairport Asset Management have been especially helpful in sharing ideas with us, as have the many participants in the Schwab Transition workshops. David DeVoe who runs the Schwab Transition program helped ix
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