Objectives-First RIA Deal Review
Evaluate the whole deal before reacting to its headline multiple
- Difficulty
- Advanced
- Time to result
- ~months to results
- Steps
- 6
- Confidence
- 97%
This review begins before an offer is accepted by documenting why the owner is considering a transaction and what must remain true afterward. Each buyer is assessed against those objectives, including culture, autonomy, control, employment obligations, and client impact. The economics are decomposed beyond the advertised multiple into cash at close, contingent payments, retention requirements, rolled equity, financing preferences, taxes, and total cost of ownership. The owner then analyzes the advisory firm as a concentrated security rather than as an extension of personal identity. Objective, experienced counsel challenges assumptions and identifies urgent terms before an LOI creates moral or negotiating constraints. The result is a comparison based on fit, risk, and realistic net value rather than a headline price.
Origin
Extracted from Masters in Business as Brian Hamburger describes recurring problems caused by owners signing letters of intent before obtaining advice and focusing on headline RIA valuation multiples.
Core principles
- 01A sale is an ongoing relationship, not a one-time payment
- 02Headline multiples do not equal proceeds to the seller
- 03The buyer must fit the seller's original objectives
- 04Tax structure can determine whether a thin deal succeeds
- 05An owner needs objective and experienced counsel before signing an LOI
- 06An advisory firm is a concentrated security that deserves disciplined analysis
How to run it
- 1
Define transaction objectives
Document why the owner might transact and rank financial, strategic, client, employee, lifestyle, and succession goals. Establish non-negotiables before reviewing offers.
Pro tip Revisit the reasons the owner originally chose independence.
Watch out An unsolicited price can displace objectives that were never written down.
- 2
Screen buyer fit
Compare each buyer's culture, service model, governance, and control terms with the seller's priorities. Examine what employment under the buyer will actually entail.
Pro tip Speak with owners who completed similar transactions with the buyer.
Watch out A seller may remain tied to the buyer for years after closing.
- 3
Decompose the consideration
Separate cash at close from earnouts, retention payments, contingencies, rolled equity, preferred returns, and other components. Apply realistic probabilities and timing to each.
Pro tip Build a cash-flow schedule rather than relying on a single multiple.
Watch out Total acquisition cost is not the same as money received by the founder.
- 4
Model tax and downside
Calculate after-tax proceeds under the proposed entity and transaction structures. Stress-test market declines, client attrition, missed contingencies, and employment termination.
Pro tip Compare structures using net present value and downside cases.
Watch out A high nominal price can underperform a lower but cleaner offer.
- 5
Analyze the concentrated security
Apply the same discipline the advisor would use for a client's concentrated holding. Examine cash flows, durability, risks, alternatives, and the value of continued ownership.
Pro tip Have an objective party challenge emotional assumptions about the firm.
Watch out Personal identity and pride can distort the owner's analysis.
- 6
Engage counsel before commitment
Use experienced legal and tax advisors before signing an LOI or making a handshake commitment. Identify which provisions are binding and preserve negotiating leverage.
Pro tip Treat advisory costs as transaction costs that protect and optimize the asset.
Watch out Even a nonbinding LOI can create goodwill constraints and reduce negotiating flexibility.
In the wild
An owner receives an offer advertised at 20 times earnings. The review reveals that much of the value depends on retention, continued employment, rolled equity, and performance contingencies, while the buyer's control model conflicts with the owner's reasons for becoming independent.
→ The owner compares realistic after-tax proceeds and fit instead of accepting the headline multiple.
A founder documents succession and client-service objectives before approaching buyers. Experienced counsel reviews control, tax, employment, and contingency terms while competitive alternatives remain available.
→ The signed LOI reflects the founder's priorities and preserves leverage for definitive negotiations.
Common mistakes
Anchoring on the headline multiple
The publicized multiple may combine cash, contingencies, retention costs, and other amounts that never become founder proceeds.
Signing the LOI too early
A nominally nonbinding document can still operate as a handshake and constrain later negotiations.
Ignoring post-close employment
The owner may sell the business but remain employed by the buyer under unfamiliar controls for many years.
Is it for you?
Best for
It is best for advisory-firm owners considering a sale, recapitalization, minority investment, merger, or succession transaction.
Not ideal for
It is not sufficient by itself for legal drafting, tax opinions, valuation work, or negotiation of a live transaction.
From the transcript
“I'm a big fan of really understanding what the objectives are before we set out to do anything.”
“Because most advisors don't think of the fact that they're going to have to be employed by this firm right afterwards, like this is not…”
“what do you own? You have a concentrated securities position, right, right, You better than me as the investment advisor, can analyze the value of…”
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