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: david.devoe@devoe-co.com 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 !