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What drives the dealmakers?
We report on plenty of deals here at Citywire RIA. You’ve seen the stories – they mention the size and location of the acquiree, the number of deals the acquirer has done recently, and usually contain some stock quote about ‘sharing a vision.’
But what led the deal to come about? What were the potential pitfalls along the way? And what drove each of the key players to do all the work involved in making the transaction happen?
For our third annual M&A special report, we decided to get into the minds of these key players. To explain how $14bn MAI Capital Management came to acquire $1.1bn Intersect Capital, reporter Andrew Foerch profiles the buyer and the seller, as well as a key acquisitions exec and an integrator who helped the deal get over the line.
In so doing, Andrew unearths stories of tense board meetings and delayed golf games, of deferred basketball dreams and regulatorily necessary office renovations. He shows us how different parties view the same events in distinct ways. And he shines a light on the processes, the incentives, and the people responsible for getting a deal done.
There’s a story behind every deal. You’re about to read one of them.
Acquisitions exec profile
chapter one > BUYER PROFILE - Rick BuoncorE
chapter two > SELLER PROFILE - Joe McLean
chapter three > Acquisitions exec profile - Will Salmen
chapter four > Integrator profile - Janet Selar
One of the chief concerns owners of wealth management practices have when contemplating a transaction is what will happen to their staff. The pressing issue for the owner(s), and the team once they get wind of the potential sale of the business, is the fear of the buyer terminating the people you have built your organization around. These loyal stakeholders have trusted you thus far, and seeing them potentially harmed as a result of your decision to sell is nerve wracking.
• Will any promises you have made be kept by the new owner?
• Will opportunity be removed from your current team?
Frankly, this is usually not an issue from the buyer’s perspective as they are as eager to retain your staff as you are. The buyers often view these transactions as talent acquisitions as much as anything. Most national buyers have dozens, if not hundreds, of open positions within their current organization and are motivated to add valuable team members wherever they can.
It is possible that in conjunction with a transaction, a position or two could be terminated, given work being centralized due to the acquisition. However, in most situations, the buyer entrusts you to make that call. Remember, they are pricing the acquisition on net cash flow; therefore it’s not of much consequence to them financially if you elect to retain someone they would not view as critical. However, the decision to retain the employee may lower your valuation. Just know that it won’t deter a buyer as it actually reduces the price they have to pay for your business.
Keep in mind most buyers don’t attempt to insert themselves or other corporate staff into your client relationships, which are the revenue-producing assets of the business. As a result, they don’t want to do anything that would potentially jeopardize that revenue, and thus losing the people in charge of those relationships would be an area they want to protect against.
The nightmare “stories” of buyers, particularly those backed by private equity sponsors, coming in and cleaning house are vastly overstated.
Regarding your staff, most buyers prefer to keep things status quo post-acquisition. While it is likely true they will want to grow revenue without adding staff to the local P&L. They can enhance the economics of each office by improving processes and technology, or expanding revenue by adding new services. This drives a key metric, revenue per employee (RPEE). Most RIA’s are around $300k revenue per employee pre-transaction. A good acquirer will buy your practice and help grow RPEE to $600k+.
Once your team gains comfort that their job isn’t going to be terminated or compensation reduced as a result of the sale, they can begin focusing on the reality of the situation; specifically their career path and corresponding opportunities increase as a result of being a part of a larger organization. As they start focusing on this, the enthusiasm for the partnership can take off. Having your team on the northbound train makes all the difference in the world as you vet partnership opportunities.
WHEN DO YOU TELL YOUR TEAM YOU ARE CONTEMPLATING SELLING THE BUSINESS?
In general, the earlier, the better. We encourage sellers to introduce the concept to the team when they believe pursuing a transaction becomes better than a 50% reality. It’s far better for you to get in front of the narrative and help your team understand that:
1. Their jobs are safe
2. Their opportunity is expanding
3. You will never do anything that would potentially be negative to them or the clients
4. You want their help to vet the partnership opportunity
Do NOT wait until the decision has been made and everything finalized to tell them. Most buyers want the team to be informed early in the process as they want assurance everyone is staying post acquisition.
One of the least talked about benefits of joining a larger organization is the ability for your team to work with others around the country who are in a similar role as them. They can train, learn and sharpen their skills alongside great people who motivate and inspire them to grow. If they are seeking to change roles or change their career trajectory, in most instances, as a part of the larger family, there will be plenty of receptivity to the notion along with resources to help them along their journey.
Alaris represents a new pathway for sellers to discover partnership opportunities.
Find out why the leading buyers in the country have engaged Alaris to find partners that align with their respective models @ www.AlarisAcquisitions.com
What happens to my team when I sell to another firm?
CEO, Alaris Acquisitions
“The nightmare “stories” of buyers, particularly those backed by private equity sponsors, coming in and cleaning house are vastly overstated.”
“We encourage sellers to introduce the concept to the team when they believe pursuing a transaction becomes better than a 50% reality.”
Buoncore turned down the contract offer and instead leaned on his accounting degree, scoring a job with Peat Marwick Mitchell (which later merged into KPMG), one of the ‘Big 8’ accounting firms at the time. A roundabout career track led him to form his own boutique family office, which eventually entered the RIA space via acquisition in 2007.
Now, 15 years and more than $10bn later, Buoncore is working to transform his firm into a national brand with operations in all 50 states. For its crown jewel, he aspires to scale up a white glove practice serving a niche of celebrity athletes, which he acquired earlier this year in a deal that was anything but traditional.
While a divergent path could’ve led him to a fruitful career in Major League Baseball, Buoncore isn’t concerned with what could have been. Sports is in his blood. He’ll be a diehard Yankees fan until his last day. And through wealth management, he’s found a way to make his mark on the game – and, perhaps more importantly, its players.
FINDING HIS WAY
In the mid-1980s, after seven years working as an accountant, Buoncore became worn down by ‘the grind,’ so he figured he’d move to the notoriously relaxed field of investment banking. He spent another seven years on Wall Street with Lehman Brothers, which he compared to ‘drinking out of a fire hose.’
A client there, Vince Farrell, eventually invited Buoncore to lead the private equity division of his boutique investment firm, Spears Benzak Salomon & Farrell. Buoncore rose up the ranks to become COO of the company, which was sold to regional midwestern bank KeyBank in 1995. The bank tapped Buoncore to lead its $70bn asset management business, Victory Capital Management, and he was off to Cleveland, which he still calls home today.
Buoncore captained Victory for nearly a decade.
‘At a very young age, it gave me great responsibility and unbelievable experience,’ he said. ‘But after 10 years, the non-entrepreneurial spirit of the bank – I’ll say it that way – sort of got to me.’
Buoncore left in 2005 to flex that entrepreneurial muscle, founding virtual family office BC Investment Partners. Six months in, a friend approached him about a firm he knew Buoncore would be interested in.
Mark McCormack was a well-known attorney in Cleveland who in 1960 founded IMG, a sports agency that started out negotiating television endorsement deals and country club exhibitions for PGA Tour golfers, who were underpaid compared with their cohorts in other sports.
In the 1950s, a rising star named Arnold Palmer had come to Cleveland, not to golf but to serve in the Coast Guard, manning the Cleveland East Pierhead Lighthouse over Lake Erie. McCormack had seen Palmer golf at tournaments around the country, and even played against him in college. From the beginning, he knew Palmer was special. He kept his eye on Palmer while running his fledgling golf agency and tried haplessly for several years to recruit him as a client.
Finally, in 1959, the reigning Masters champion signed with McCormack. But Palmer wasn’t happy that McCormack was splitting his time with other golfers – he wanted his agent all to himself – so McCormack bet big and fired every one of his other clients. His role became to manage Palmer’s entire financial life, from paying bills and filing tax returns to sourcing endorsements and setting up his will. The modern RIA model wouldn’t emerge for several decades, yet McCormack was already holding himself to a fiduciary standard.
Eventually, IMG hired more agents and took on more clients, including Formula One drivers and other golfers such as Jack Nicklaus. Alongside IMG, McCormack built a financial management business to handle his clients’ business affairs, as he had done for Palmer. That company began in 1973 as Investment Advisors International, and later rebranded as McCormack Advisors International, or MAI.
‘He never did it with a business design in mind. He did it with the idea that whatever the client needs, I’m going to provide it,’ Buoncore said. ‘The mindset of the people within MAI was to take care of the client, to a level that I had never seen in my life.’
When Mark McCormack died in 2004, his family sold IMG to Forstmann Little. Fearing the increased regulatory scrutiny that would result from owning an RIA, the private equity firm left MAI behind with McCormack’s family. The business was stagnant for a few years, so the family decided to search for another buyer. Buoncore happened to know the person representing the family in that sale process.
Buoncore liked what he saw. The family held an auction process, and Buoncore’s bid prevailed. The deal closed in 2007.
Buoncore says he knew as soon as he looked at the offering memorandum that MAI’s practice – and the idea of managing finances for pro athletes – represented a different and wildly profitable opportunity in the advisory space.
‘To start, I thought maybe we’d get to $10bn or $20bn – and we have. Now the vision is much grander than that.’
The firm grew organically for a while, but Buoncore aimed to make MAI a national name. It was an aspiration that required a sustainable acquisition strategy. In 2017, the firm took on an outside investor, Wealth Partners Capital Group, to fund such activity. Over the subsequent four years, MAI acquired more than a dozen firms, many of which specialized in serving athletes, and grew to more than $12bn in AUM.
In August 2021, MAI’s investment banker, Brad Siegert of Ardea Partners, suggested that Buoncore take some risk off the table. He shopped MAI around to a handful of investors but couldn’t find a good fit.
Then along came John Hahn, the executive chairman of Galway, the holding company that owns Epic Insurance Brokers & Consultants. Hahn was looking to buy an RIA to use as the cornerstone of a national wealth management division. He and Buoncore, both NYC natives and Fordham alumni, hit it off immediately. Hahn introduced Buoncore to Dave Howard, the Fordham law school graduate and former New York Mets business operations executive who was running Epic Select Insurance Advisors. The two soon realized that they had met before; Buoncore and Howard had faced off during a college baseball exhibition game.
‘We beat them, five to three. I remember the game: I had a double,’ Buoncore said.
The three of them shared a vision to create a ‘complete financial powerhouse’ that could take care of clients in any way they could possibly need, from insurance to wealth management to real estate and beyond. The myriad interpersonal synchronicities seemed to indicate that a partnership was meant to be.
There was just one, not-so-little complication.
Before Buoncore joined the fray, Hahn had another acquisition in the works with a fast-growing but much smaller RIA called Intersect Capital, operating out of California’s Bay Area. On July 8, during Buoncore’s first official deal meeting with Hahn and about 20 Galway senior executives, a tall, well-groomed man sat on the sidelines and listened quietly. This was Joe McLean, the founder and managing principal of Intersect. At first, Buoncore was taken aback.
‘That’s not normal. You don’t bring somebody who’s not part of your company into a due diligence session,’ he said. ‘But the more we got to know Joe, the more he was like a brother from another mother. He had the same exact philosophy.’
One of the challenges for Galway was that Intersect wasn’t a complete wealth management platform. Intersect operated in the lucrative niche of celebrity athletes and managed $1bn, but Galway would’ve had to invest heavily to grow it into a national platform capable of serving its $80bn client base. MAI, on the other hand, was essentially fully formed.
‘After doing it for 14 years, I know building it isn’t the easiest or the funnest thing to do. Using it, that’s the fun thing,’ Buoncore said. ‘I think it became an easy decision for Joe.’
Buoncore, Hahn and McLean decided that structuring Galway’s acquisition of MAI to include a subacquisition of Intersect would be accretive to all three firms. Buoncore began inviting Hahn and McLean along when he’d take clients out to dinner or golfing at Pebble Beach, not just for a fun time but to vet the personalities of his prospective partners.
‘When you’re on a golf course, you get to know somebody, right? Do they throw their club? Do they yell and scream? How do they react to adversity?’ he said. ‘Joe was just so well put together and articulate and upstanding.’
Things progressed at warp speed after the July 8 meeting. Hahn sent out a term sheet on July 11, which Buoncore and co. signed on July 14. The final purchase agreement for a 75% stake in MAI was signed less than a month later on August 13.
‘John [Hahn] and I would get on the phone and we would basically say: “OK, what do you think is fair?” Any issue that we had to resolve, we resolved within minutes, not days. That’s what got me the most comfortable. Conflict is going to arise, but it’s about how you deal with it, how you come to a fair conclusion.’
By September 30, the deal was closed, marking less than 90 days from ‘hello, stranger,’ to ‘hey, partner.’
MAI immediately went to work on the Intersect acquisition. Galway had already gone through negotiations with McLean, so financial terms were already sorted. Due diligence, on the other hand, was a bit of a beast.
Because McLean spent the majority of his time meeting and managing money for his clients – who frequently bring him outlandish requests, from negotiating prices on exotic sports cars to sourcing equally exotic fish for an in-home aquarium – his firm’s internal financial accounting had gotten, to put it kindly, messy. Data was held by different third-party vendors and wasn’t centralized anywhere. Contract forms were disorganized and, in some cases, out of date. One point of contention was that Intersect shared an office with a separately owned CPA firm. To become compliant with the Securities and Exchange Commission’s data and privacy requirements ahead of the deal, Intersect had to literally build a wall between its own operation and that of the accounting firm.
But these wrinkles were eventually smoothed out thanks to Galway’s M&A and legal teams, and in July, the deal was closed. ‘Joe was at some golf tournament,’ Buoncore said. ‘We both got DocuSign and – boom – we’re done.’
BUILDING A BRAND
While the M&A machine will continue to churn, Intersect now stands to play a crucial role in MAI’s next phase of growth. McLean has become MAI’s chief innovation and growth officer and will take on the responsibility of becoming MAI’s ‘brand ambassador’ for television spots and other public-facing marketing campaigns. One of McLean’s ideas is to launch a podcast that will feature his big-ticket Intersect clients – including names like Peyton Manning and Klay Thompson – speaking about their lives during and after their sporting careers.
‘We needed to figure out a way to make MAI a brand,’ Buoncore said.
While the kid from Queens has brought MAI a long way since 2007, he likes to say that the sale to Galway and the acquisition of Intersect are only ‘the end of the beginning.’
With a smile you could hear over the phone, Buoncore promised: ‘We’ve got a long way to go.’ ◊
Decades before he helmed a $14bn RIA, MAI Capital Management chief executive Rick Buoncore was going to be a Major League Baseball player.
The Queens native’s success with the Fordham Rams was such that he received a minor-league contract offer when he graduated college. ‘It was going to be the Toronto Blue Jays affiliate, rookie ball, for $500 a month,’ Buoncore recalled. But the organization didn’t provide housing for the athletes – a problem that, along with poverty-level wages, still plagues minor-league baseballers today. ‘I would’ve had to live with five guys to make ends meet,’ he said.
The MAI CEO never went pro, but an unconventional acquisition will help him make his mark on the sport he loves
At a very young age, Victory Capital Management gave me great responsibility and unbelievable experience. But after 10 years, the non-entrepreneurial spirit of the bank – I’ll say it that way – sort of got to me
The mindset of the people within MAI was to take care of the client, to a level that I had never seen in my life
Any issue that John Hahn and I had to resolve, we resolved within minutes, not days. That’s what got me the most comfortable. Conflict is going to arise, but it’s about how you deal with it
At the same time, John Hahn’s Galway Holdings, the owner of Epic Insurance Brokers and Consultants, sought to buy an RIA to serve as the foundation on which it would build a national wealth management platform offering financial advice to Epic’s insurance customers. A match made in heaven, right? McLean thought so, until MAI, with its $20bn in client assets and competitive suite of advisory services, shouldered its way into the fold.
‘I had observed them for years because they were in the sports business,’ McLean recalled. ‘To sit in that room and have them start talking about who they are… I was looking at my phone to find when Southwest had a flight out of Cleveland. I was going to get up and leave.’
But age and experience taught McLean not to be emotional about business. Instead of walking out, he kept listening. That evening, the group went to dinner at an Italian restaurant in town.
‘It was a full room. Everyone just started sharing stories. When I started hearing everyone’s stories, it all started linking back together. I remember thinking that night: “I’m glad I didn’t leave.”’
Two months later, Galway closed its acquisition of a 75% stake in MAI. But McLean didn’t let himself get sidelined. Instead, he struck a deal to sell Intersect to MAI, where he could scale his practice up while still providing the type of personalized service that made Intersect successful in the first place.
A DREAM DEFERRED
As tennis legend Billie Jean King once said, ‘champions adjust.’
This has become something of a mantra for McLean. From walking away from his NBA dream to not walking away from what appeared to be a deal gone wrong, McLean has learned to embrace hard change and spin it to his advantage. Of course, metaphorical trophies aren’t the ones he thought he’d be hoisting when he was in his teens and 20s.
The lanky 6′ 6″ Concord, California native played four years as a forward for the University of Arizona Wildcats under legendary coach Lute Olson. He made it to the NCAA’s Final Four in 1994 and hoped to go pro upon graduation, but the NBA franchises he trained with in the offseason always cut him.
After a few years, McLean went overseas, where he bounced around trying out for teams in various professional leagues in Europe and Australia. Over a three-and-a-half-year span, he lived in 11 countries and got cut 11 times – which he acknowledged was not a bad way for a young man to see the world in the late ’90s.
But McLean soon reached the end of the road. After college, he’d moved in with his best friend’s father, a residential real estate developer and self-made success story who had helped fund McLean’s training and travel needs.
‘He sat me down one night and said: “I think we’re basically done.”’ McLean recalled. ‘He said: “Sure, you can probably keep going and maybe even make it. But what are the sacrifices now that you continue to make – friends, family, life – to continue to seek this out? And what are the end benefits from that?” I really didn’t want to do it, but I took his advice and I did it.’
Without a clue what the future held, McLean hung up his high-tops and enrolled in the University of Arizona’s business school at his mentor’s behest. He eventually started interviewing with major Wall Street firms. While most turned him down, Franklin Templeton did not. He was tapped as a wholesaler and was sent to Dallas to help train new advisors, many of whom were right out of school. With lots of conviction but virtually no applicable knowledge, McLean dove in.
BACK IN THE GAME
When McLean stepped away from basketball, he was admittedly bitter that he ‘never became the posters on the walls.’ Ever the competitor, his mindset was such that if he wasn’t going to make it to the cover of Sports Illustrated, he’d get himself on the cover of Forbes instead.
McLean spent the better part of a decade with Franklin Templeton before moving to a similar training role with AllianceBernstein in the wake of the financial crisis. ‘I was on the road six days a week, 50 weeks a year, eight hours a day, traveling all over the country,’ he said.
Eventually McLean figured he’d take a shot at implementing the prospecting and client service processes he’d been teaching.
‘In the first year of my first advisor job, a couple old teammates came to me and said: “Hey, I heard you’re in that money thing.” These people had made hundreds of thousands or millions. I realized none of them were doing the things that the other wealthy people I had observed were doing. The light went on for me. That bitterness was gone.’
Boardroom, meet locker room. McLean was back in the game.
After a few years of cutting his teeth as an advisor with San Francisco RIA True Capital Management, McLean struck out on his own with a book of roughly $24m in total AUM across about two dozen clients. He approached a friend, Andy Armanino, a partner at the eponymous accounting firm, about available office space he could use for his practice. Armanino went a step further, helping McLean merge into the firm’s in-house RIA, Financial Horizons.
McLean ultimately ditched the Financial Horizons name and rebranded the firm as Intersect Capital, since it existed at the metaphorical intersection of Wall Street and Rucker Park, the latter being a famous basketball court on the streets of Harlem. After that, McLean said, business ‘took off.’
Having been in their shoes not long ago, McLean was good at talking to young athletes about money management in terms they were familiar with, breaking down the plays that would help them drive toward their long-term goals. This coach-like approach helped McLean land A-list clients like Klay Thompson, Isaiah Thomas, Hassan Whiteside, Nikola Vučević and DK Metcalf, as well as many of their teammates. Even among all-stars, referrals remain a key organic growth engine.
Because of their huge contracts, McLean’s focus as an advisor was never to seek investment alpha but rather to nurture sustainable spending and saving habits. He took on the management of taxes, wills and trusts, and oversaw real estate, automobile and other luxury purchases, including several dozen rare tropical fish for one client’s home aquarium.
To encourage frugality while allowing for the occasional splurge, McLean imposed a requirement that his clients save 70 cents of every dollar earned while strictly banning ‘investments’ in goods that a person could ‘eat, wear, drink or drive.’ If a client couldn’t adhere to these standards, they’d risk being fired, although, with clients recently launching clothing lines, restaurants and wine brands, McLean has now loosened his position on the latter rule.
Over time, Intersect’s clientele grew to include Silicon Valley founders and business executives, who McLean realized could benefit from the same white-glove style of advice. Today, despite being the flashiest segment of his clientele, athletes comprise just a third of McLean’s $1bn book.
By 2020, Intersect had reached critical mass. CPA firm Armanino passively owned a stake, but McLean had been funding his practice’s growth with his own money. To take his firm to the next level, he needed a strategic partner.
Enter John Hahn, Galway’s executive chairman, who initially approached McLean to pitch him Epic Select, the ultra-high net worth segment of Epic’s property, casualty and life insurance business.
‘He started telling me his story of taking a boutique service operating in San Francisco and turning it into a multibillion-dollar insurance business… using other people’s money,’ McLean said. ‘I started making phone calls and talking to the other merchants out there, all the while knowing I wanted it to be John.’
The two developed a close friendship, and in 2020, at the ninth hole of a golf course in Cabo San Lucas, with overworked Galway banker Will Salmen by his side (see page 19 for more), McLean signed a letter of intent to sell Intersect to Galway.
Then the hard work began.
MESSY FINANCIALS AND CONFLICTS OF INTEREST
Despite building a successful, growing business, McLean maintains that he’s ‘not a businessperson.’ He admits that his time as a traveling wholesale trainer taught him how to be an advisor, but not how to run an advisory business. This – along with the disproportionate amount of time McLean spends with his clients – led to some practice management challenges that bubbled up during due diligence.
‘We had several solo advisors that ran their own personal P&Ls. We just didn’t run it as a united firm,’ McLean said. ‘I always knew what our revenue was, but I was never concerned with expenses because we were always growing.’
Luckily, McLean had hired a virtual CFO to help get his accounting in order about three months before entering serious deal talks with Galway. Once Galway got involved, the firm’s internal deal team, including lead ‘banker’ Salmen, helped complete the project.
‘There was a lot of trust right there,’ McLean said of Hahn and the Galway executives. ‘It’s kind of funny because they were helping me understand my own business while at the same time perhaps doing a deal.’
That trust became even more crucial when MAI entered the mix. After months of conversations, many of which revolved around what McLean’s role would be at MAI, McLean and Buoncore finally signed a binding purchase agreement on July 15. Coincidentally, McLean would sign that document while playing another round of golf.
Intersect had found its platform, but the hard work was not done. One pressing issue was that Intersect shared an office space with Armanino, the accounting firm that until recently had owned a minority stake in the RIA. Selling the practice and remaining located inside an unaffiliated CPA firm would have created a conflict of interest and could technically have violated regulations around client privacy and protection of sensitive information.
The obvious solution – and perhaps the easy one – would’ve been to move. But McLean had favorable rental terms due to his friendship with Armanino and didn’t need to upsize because most of his staff was working remotely. Instead, he decided to build a wall sequestering Intersect from Armanino. Establishing a border between nations would eliminate the conflict, achieve compliance, and help McLean save on rent in the increasingly expensive Bay Area. Construction was not without casualties. McLean lost his coffee room in the process, which he conceded was a small price to pay to push the deal across the finish line.
Interestingly, the process McLean went through to sell his practice has become a lesson for his clients.
‘I wanted to model the growth of an entrepreneur because they, too, are entrepreneurs,’ he said. ‘I can share all the pitfalls that exist, why you want to make these types of decisions, and then how you assess who to allow in your locker room.’
He said that his athlete clientele are quick to mature in their understanding of financial management, and many have become the go-to resources on their respective teams for younger players seeking guidance. Some, he said, will end up working for MAI when their on-court careers eventually end.
‘Everyone wants to be in a good room, whether it’s a locker room or a boardroom,’ McLean said. ‘I want to make this room bigger and more intimate so we can effect change the right way.’ ◊
Joe McLean, normally a steady hand, is squirming in his seat.
It’s July 8, 2021, in Cleveland, and the managing partner of Intersect Capital is about to storm out of a board meeting between executives of Galway Holdings – which months prior signed a letter of intent to buy his firm – and MAI Capital Management, a direct competitor looking to take his place as Galway’s acquisition target.
Since founding his white-glove advisory practice in 2014, McLean had amassed about $1bn in client assets, partially by focusing on a client niche of celebrity athletes – a specialty he developed while managing money for his former college basketball and EuroLeague teammates. But the firm was growing faster than he could support on his own. It was time to take on a capital partner.
Intersect Capital’s managing partner thought he had missed out on his perfect match when his firm was passed over. But he played the long game
A couple old teammates came to me and said: ‘Hey, I heard you’re in that money thing.’ These people had made hundreds of thousands or millions and none of them were doing the things other wealthy people were doing
We had several solo advisors that ran their own personal P&Ls. We just didn’t run it as a united firm. I always knew what our revenue was, but the rest of it, I was never concerned with expenses because we were always growing
I wanted to model the growth of an entrepreneur because athletes are also entrepreneurs. I can share all the pitfalls that exist, why you want to make these types of decisions, and then how you assess who to allow in your locker room
Warren Buffett has been attributed as saying, when the tide goes out, we can see who’s been swimming naked. Wealth management M&A was in a robust bull market for several years leading up to the pronounced market volatility of 2022. While industry-wide RIA deal volumes have slowed modestly in 4Q, the reality is that several headline-grabbing transactions still got done despite the market headwinds. Investment bankers John Langston and Peter Nesvold offer some perspective on what it takes to right the ship when the waters turn choppy.
How did the volatility of the financial markets impact RIA mergers and acquisitions in 2022?
It’s no secret that the ebbs and flows of the financial markets can have a direct impact on the economics of wealth management firms. Market performance influences AUM, which in turn drives revenues and margins. When the financial markets are in a steady climb higher and interest rates are unusually low, investment horizons stretch, buyers become more accommodating of an acquisition target’s minor blemishes, and deal multiples increase. With this year’s market sell-off and rising rate environment, however, investment horizons contracted – with a heightened focus on the here and now – and deal multiples wavered. Moreover, during downturns, sellers often turn backward looking on valuation; they mentally anchor to the higher valuation they might have gotten just a short while ago – i.e., before industry fundamentals started to change. That creates a widening bid-ask spread between what a seller thinks the business is worth and what a buyer is willing to pay.
How can deal structure help to reconcile this bid-ask spread?
The magnitude of the bid-ask spread often comes down to how long the respective parties expect the volatility to continue: some sellers will suggest that downturns are likely to be short lived, while many buyers will argue that the industry has entered a new, slower-growth paradigm. Even still, most buyers are more than happy meet a seller’s valuation expectations if and when the seller actually achieves its projections. Therein lies one of the opportunities – restructure the offer around a series of “if…then” statements.
Can you provide some examples of deal structures that accomplish this?
Contingent consideration can be used as a bit of a Swiss army knife in these situations. The buyer agrees to pay the seller additional value at an agreed-upon date in the future if the seller achieves certain milestones, which are commonly linked to either revenue or EBITDA. Probably the most popular form of contingent consideration is the earnout, which we certainly have seen enter more discussions over the past year.
However, earnouts are not the only option. Restricted stock units, or RSUs, are another tool. For instance, we recently worked on a transaction in which the potential seller’s EBITDA margins were below-average because the firm had been proactively staffing ahead of growth to build a strong chassis. As a result, the seller was inclined to not transact in the near term, but rather to grow into its infrastructure. The buyer agreed to set aside a pool of RSUs that would be released to certain key executives if and when the firm achieves certain margin thresholds.
In a third and final scenario, we had a seller that was growing EBITDA quite substantially – north of 30% – even despite the difficult market conditions. This seller, who was speaking with a private equity sponsor about a cash investment to fund growth, felt that he should wait one more year to transact so as to harvest a higher valuation. The sponsor proposed a solution in which it would invest in the firm based on current EBITDA, but it would agree to dilute itself down by 30% in the event the seller hit an agreed-upon EBITDA target over the subsequent 12 months.
RIA Mergers and Acquisitions
– Tackling Volatility through Deal Structure
Republic Capital Group
Republic Capital Group
John Langston, Managing Partner and Peter Nesvold, Partner of Republic Capital Group on the importance of being strategic and creative when creating deal structure.
McLean recalled finally signing a letter of intent (LOI) to sell his RIA practice to Galway on a golf course in Cabo San Lucas after months of discussions with executive chairman John Hahn.
‘We had just finished nine holes,’ McLean said. ‘Will stopped us and was like: “Can we please sign this LOI before we finish 18 holes so I can still have a job?” I already knew I was going to sign it. We stopped at the turn and sat down for 10 minutes, went through it one more time, and signed it on the golf course.’
Of course, the work didn’t end there. Galway ended up redesigning the acquisition to position Rick Buoncore’s MAI Capital Management as its primary target. Intersect became a subacquisition, selling to MAI in July 2022. From start to finish, Salmen was at the center of it all, sorting through financial records, calculating valuations, and playing middleman between buyer and seller.
‘The things we put him through…’ McLean said.
But Salmen, in his own words, is an ‘easy-going’ guy who ‘doesn’t sweat the small stuff.’ He acknowledged that the process was ‘long and arduous,’ but described it as a career milestone. ‘It was one of the first deals where I made a true personal and professional relationship with the principal,’ he said. ‘That was big for me.’
'IT'S NOT ROCKET SCIENCE'
Salmen and his team don’t originate deals. Galway calls them in once an outside investment banker or internal office head sources a prospective acquisition target.
After all parties sign an NDA, step one is to pull the target firm’s preliminary financials, usually for the prior three years. If an investment bank is involved, they’ve probably done this already, and will typically send Salmen a letter defining exactly what the target firm wants to see in an LOI and setting a due date.
Salmen’s team looks at recurring revenue and expenses, plus any nonrecurring revenue or run rate adjustments that the target principal might apply. If the figures make sense, they’ll build out a pro forma profit and loss statement projecting the target’s sustainable go-forward Ebitda for the trailing 12-month period. Then they’ll apply a market multiple to that Ebitda and draft up an LOI.
‘I go to [lead attorney] Denise [Walsh] for her comment, and maybe we do some sort of valuation analysis that might show if there’s an earnout component. We make some assumptions about what the Ebitda does over the next three to five years, what that does to our effective multiple and what the downside risk is if business were to drop,’ he said.
Salmen humbly concedes that ‘it’s not rocket science.’ But it’s no walk in the park either – especially when the target firm’s financial records are cluttered, as was the case with Intersect.
‘Data wasn’t flowing as quickly as it could have. That was just a function of Joe being a small shop where he was focused on clients and less focused on all the detailed minutiae around AUM flows and billings,’ Salmen said. ‘He had a great accountant [the virtual CFO] that helped us through this whole process. Without him, it probably wouldn’t have happened.’
Walsh, for her part, confirmed that due diligence was the most troublesome aspect of the Intersect deal from a legal standpoint. ‘Most sellers would say due diligence is like a root canal. Or some might say a proctology exam,’ she laughed. ‘You could tell sometimes Joe got frustrated on a diligence call with me because he felt like they had already answered those questions. It’s tough.’
While Intersect’s messy recordkeeping didn’t end up impacting the firm’s valuation, which is largely determined upfront by its size and growth rate, it did impact the deal’s timeline. That ultimately allowed MAI to swoop in mid-process.
A NEW DEAL
In the summer of 2021, John Hahn, Salmen and his team went to New York City to meet John Copeland, Rich Gill and Sean Bresnan, the founding partners of serial RIA backer Wealth Partners Capital Group.
‘We were telling them our vision of wealth management and how we could bring some of what we did with Epic and JenCap and the growth that we facilitated in the insurance space, bringing that to wealth management. We had a real common similarity in the way we’ve always thought about acquisitions,’ Salmen said. ‘Sean and John hit it off and thought, you know, John is going to love Rick.’
They set up a meeting in Cleveland at MAI’s headquarters for early July. There, Buoncore, Hahn and the WPCG contingent talked shop. McLean sat on the margins, listening quietly and considering whether or not to bail.
Salmen said Hahn explained to Buoncore that Epic never acted as a serial acquirer or roll-up, a model he believes ‘can feel a little like financial engineering.’ Rather, Salmen said, ‘we want to build a business with employee shareholders and one culture. It sounds cheesy, but that’s kind of how Epic was founded.’
That sat well with Buoncore, who built MAI around a similar philosophy. The group moved quickly, signing a term sheet for Galway’s acquisition of a majority stake less than a week after the initial July 8 meeting. The ink dried on a definitive purchase agreement about a month later.
‘It was the fastest deal that I’ve ever seen,’ Salmen said.
MAI’s emergence, however, meant McLean and Intersect were pushed to the back burner.
‘That was the hard part for me in this deal. We had to get MAI done before we brought Joe back into the fold. That added to the length of the timeline, but it was a necessity.’
Salmen and his team had already done the legwork for Intersect’s term sheet and were essentially ready to pick up where they’d left off, but there was no guarantee that McLean would remain interested after Galway changed the playbook. To his credit, Salmen said, McLean recognized the opportunity presented by MAI’s involvement.
‘Rick had spent the better part of a decade taking a family office and building that infrastructure around it to make it a true wealth management firm. To be honest, it’s not every day that you get to be invited into something like that, especially when you know it’s a competitive marketplace,’ he said. ‘You’ve got to take swings, and this was a great one.’
McLean’s term sheet essentially stayed the same, so Salmen’s role became to solve Intersect’s business-related issues ahead of the definitive agreement. That included facilitating the construction of a wall to separate Intersect’s office from Armanino – causing yet another delay.
‘The wall was definitely a first,’ Salmen said. ‘That’s where we really relied on MAI. We may not have even thought of that if it weren’t for MAI and their compliance team.’
Finally, Buoncore and McLean signed their purchase agreement on July 15. McLean, Hahn and Salmen celebrated with dinner, then caught a Golden State Warriors game at Chase Center. That gave them the opportunity to cheer on several of McLean’s clients, who were – and still are – on the roster.
Salmen said it was rewarding to see the long deal process cross the finish line.
‘I love getting together with people and making connections. That’s kind of how John Hahn and I have gotten so close over the years. We just love working hard and we love creating nothing from something,’ he said. ‘Hopefully I’ll be able to be a significant player in M&A for all things MAI and wealth management.’ ◊
Joe McLean likes to joke that MAI’s acquisition of Intersect Capital doubled the speed of Will Salmen’s aging process.
Salmen, Galway Holdings’ vice president of acquisitions, is just 33 years old, but was given the tall task of serving as the lead broker executing MAI’s deal to buy Intersect Capital, a laborious process that took well over a year to close. Salmen is no rookie – he’d been on Epic Insurance’s M&A team for the better part of six years and frequently led acquisitions of insurance firms – but the Intersect deal was his first in the wealth management space.
Galway HOldings’ VP of acquisitions made a significant breakthrough in the deal on the golf course. But he wasn’t
just a caddy
When it comes to integration at MAI Capital Management, Janet Selar’s philosophy is to trust the process. After all, she’s the one who designed it.
Selar has served since 2021 as MAI’s in-house integration czar, running point on the series of complicated tasks that must be completed in order for MAI to operationally absorb RIAs that it acquires or merges with. That means executing high-level changes, like repapering clients, and granular ones, like sourcing new business cards and changing wall signage at acquirees’ offices.
With the deal closed, the arduous process of integrating the companies begins. MAI’s in-house integration czar, Janet Selar, explains her ‘method to the madness’
This is no small role. MAI’s growth strategy depends heavily on mergers and acquisitions. The $16bn firm has acquired a whopping 22 RIAs since taking minority backing from Wealth Partners Capital Group in 2017. Since joining MAI in February 2021, Selar – who previously worked with Victory Capital Management under Rick Buoncore and Jim Kacic – has headed up the integration of more than a dozen RIA acquisitions for MAI. Among her team’s largest projects this year was to integrate Intersect Capital.
While standardized processes can help streamline certain aspects of any integration, no two integrations are exactly alike.
WHAT'S IN A PROCESS?
Selar’s integration process begins once a letter of intent is signed. While the legal and banking teams perform due diligence, reviewing the target firm’s financial statements and completing term sheet documents, Selar begins organizing introductory meetings between MAI executives and advisors at the target firm.
The next step is client repapering. About two weeks are spent issuing new investment management agreements to clients of the target firm. These forms reconfirm their fees, lists of services and billing schedules. Selar said repapering is a particularly clunky part of integration, so she works to limit the number of ‘touchpoints’ that could lead to disruptions for clients. While waiting for clients to sign their new contracts, Selar handles the distribution of new business cards, installation of MAI signage and any necessary office renovations. She also arranges meetings with the target firm’s marketing, IT and management information system teams. The goal is to be ready to sign the final purchase agreement within 90 days of the initial letter of intent.
Once the purchase agreement is signed, phase two begins. Selar’s team works on migrating the target firm’s client data over to MAI’s client relationship management portal and its computer, email and printer systems. For the first few weeks after an acquisition is announced publicly, advisors operate in a ‘parallel environment’ where data is entered into both MAI’s system and the target firm’s previous system; this helps Selar’s team validate the data they’ve already migrated over while giving the new advisors time to learn MAI’s processes.
Finally, target advisors enter specific training sessions for MAI’s customer relationship management software, trading and money movement processes, as well as compliance policies. Selar recently introduced a ‘buddy system’ where each new team member is assigned an MAI client support specialist who can answer questions and provide support once the integration team bows out.
METHOD TO THE MADNESS
This may seem overwhelming, but Selar insists ‘there’s a method to the madness.’
Selar is a student of Six Sigma, a methodology created by Motorola engineer Bill Smith in the 1980s that aims to improve the efficiency and effectiveness of manufacturing or business processes. The core philosophy is that minimizing variation within a process can help achieve consistent, predictable results, and that variations – and therefore points of potential failure – can be minimized using data and statistical modeling.
‘None of these acquisitions are identical, right? But by documenting the processes, or the guidelines as I like to call them, it gives everyone a starting point of what to expect,’ Selar said. ‘As we work through that and as we look through the data that we collect, we adjust the process.’
Selar noted that Six Sigma was created with manufacturing in mind but works well in finance, and said it helps her to identify and eliminate points of risk within the integration process. Introducing DocuSign, for example, has made repapering considerably easier for her and her team, as well as for clients.
In days gone by, she said, ‘we’d all spread out in the conference room, packaging all these documents that needed to be FedExed to the clients. We were putting everything in these red folders – the whole room would be red.’
She added that ‘because everything is automated now, we have boxes of red folders that are sitting unused,’ serving as a physical reminder of how much the back end of wealth management has changed.
Intersect Capital has presented an interesting challenge for Selar and her team. At $1.2bn in client assets, the firm is MAI’s largest acquisition target yet. The high-touch nature of the firm’s client service model means it has more client data to migrate than the average RIA.
For the same reason, Intersect over the years developed partnerships with multiple third-party vendors, including different digital payment services and concierge services. There wasn’t always just one vendor per service, either, because Intersect had different clients using different services based on how long ago they joined the firm – resulting in redundant expenses for the firm.
But at this point, so recently removed from ‘client day one,’ Selar decided it might not be prudent to start canceling vendor relationships and moving clients from one service to another.
‘We never want to harm the client, so we decided the best way is to leave everything in place for now,’ she said. ‘When the time is right, we’ll take an in-depth look at those services. Do we leave it outsourced, do we bring it in-house, or is there some other solution?’
Also yet to be completed is a conversion of Intersect’s historical performance data into MAI’s accounting and reporting systems. Intersect’s clients tend to have high concentrations in alternative assets, so MAI has to set up a system that can handle the reporting of those allocations. Once that information is migrated and its accuracy verified, the new systems will be rolled out to clients. The same goes for historical billing data.
In terms of administrative and office updates, contracting the construction of a wall, and more than one door, around Intersect’s space within Armanino’s building wasn’t Selar’s only task. She also had to install a security system in the form of employee card readers for the office and set up a new internet network so Intersect’s client data wasn’t sitting on Armanino’s servers. Those projects, she said, had delayed her deployment of painters and sign installation workers, who will soon transform Intersect’s office into an MAI office. She added it had been a ‘nightmare’ to get Verizon to transfer Intersect’s phone numbers to MAI’s service provider, a process known as porting.
‘Believe it or not, that’s been our longest lead time,’ Selar said.
Once these tasks are complete, Selar and her team will be largely in the clear, aside from their weekly meetings smoothing out any remaining wrinkles for Intersect’s advisors and client support staff. Selar’s tradition is to host a celebratory video call with her eight team members on a Friday afternoon post-close.
‘We always do a celebratory toast,’ Selar said. ‘We all play a role.’ ◊
by documenting the processes, or the guidelines as I like to call them, it gives everyone a starting point of what to expect, As we work through that and as we look through the data that we collect, we adjust the process
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