Complete vs. Partial Sale

In today's rapidly evolving market for wealth management practice M&A and financing, buyers and sellers have a lot of important considerations. With the increase in the number of M&A transactions, deal structure, complexity, and options have also increased.

One evolving transaction option – a partial sale – has gained significant momentum in the last couple of years. Compared to a complete sale where 100% of the ownership is transferred to a new buyer(s), a partial sale entails the sale of a portion of the practice, such as 5%, 25%, 49%, etc. Sellers can dictate what percentage of their practice they sell and how much control they hand over.

In 2018, partial sales only accounted for 18% of all SkyView Partners loan transactions. As advisor awareness around partial sales has increased, partial sales surged to 65% of funded loans in 2019; clearly, sellers are signaling their interest in this transaction type. There are some key considerations for buyer and seller when contemplating a partial versus complete sale:

Seller Appetite

Often, senior advisors elect to never sell their practice at or near retirement. David Grau Sr. JD cites that only two percent of independent and registered investment advisors sell their practice and appreciate a liquidity event at retirement. Our experience is that many senior advisors have a greater appetite for staying involved with the practice they have spent decades building via a partial sale instead of a complete sale. Savvy buyers recognize this desire and are accommodative of seller's need to remain with the practice for months or years to come.

Conversion Risk

Buyers and sellers considering a partial sale provide the senior advisor with a more elongated retirement glide path to transfer households to the buyer. "Sellers involved in two-step transactions (aka "partial sales") often enjoy a high level of client retention because the seller is still an operator and owner of the company, meaning interests are perfectly aligned in keeping clients and ensuring financial stability," stated ECHELON Partners CEO – Dan Seivert.

Financing Alternatives

If buyer and seller desire bank financing to fund all or part of the transaction, the senior seller's continued involvement is a key underwriting factor. In a partial sale where the senior advisor remains an owner for over twenty percent, the bank will require the seller to be a co-guarantor. Buyer and seller may find more attractive financing options, rates, and terms when a newly liquid seller remains on as a guarantor.

Multiples & Valuations

Buyers and sellers need to know that partial and complete sales commonly fund at discernably different multiples. For example, in 2019, SkyView funded partial sales at an average multiple of 2.1x versus 2.5x times trailing twelve-month revenue for complete sales. This data suggests that savvy buyers seeking to gain a foothold in a practice may be able to acquire at a more attractive multiple than that garnered with a complete sale.

SkyView funded a partial sale transaction for Bill Bergstrom CFP, a sixty-year young advisor in Minneapolis, Minnesota. In exchange for a liquidity event, Mr. Bergstrom sold forty-eight percent of his practice to his two junior partners. "Selling a portion of the business to those that helped me build it was not only the right thing to do for my junior partners but also my clients. The transaction gave everyone involved peace of mind knowing that all parties would be taken care of appropriately. The partial sale gave me the impetus to transfer some of the responsibilities and time commitments to my new partners allowing me to redirect time to further grow the business or spend time with my family," stated Mr. Bergstrom.

Partial sales have several advantages over complete sales for buyers, sellers, and clients of the wealth management practice and are rapidly gaining momentum.