It's my pleasure to introduce you to the first breakout speaker of the day, Tyler Nunnally. Tyler is the founder and CEO of Nunnally International, Inc. The company provides strategic M&A services to REA firms that are looking to buy, sell, or merge their business. Nunnally has been a key relationship manager to strategic partners at prominent financial institutions including Schwab, Fidelity, TD Ameritrade, LPL, and SEI Investments, as well as leading advisor technology such as Redtail, Orion Advisor Services, eMoney, MoneyGuide Pro, and FI360. Please help me in welcoming Tyler to the podium. I appreciate everyone coming today. I know your time is valuable, so I greatly appreciate it. The title again of the presentation is Three Factors Key to M&A Partnership Success. I'll kind of start with my background and how I got into M&A and talk a little bit about our process and kind of the science behind M&A. Can I start with a show of hands for folks that have sold a business before? And any buyers in the room? And sellers? Potential sellers? Okay. Good. So, there's a lot of buyers in the market, as everyone knows. So I'll talk about that, but there's definitely an imbalance, I would say, between supply and demand in terms of the number of buyers versus the number of sellers. But the way that I got involved in this is I graduated from the University of Georgia in 1992, and I had this idea that I was going to start a business in Prague in the Czech Republic after the collapse of communism. And so, without understanding the language, I moved to Prague and began my business endeavor there. And it was after the collapse of communism, so it was in that transition period between communism and capitalism. And so, there wasn't a lot of guardrails at the time in terms of regulation. So it was unbridled capitalism. In a lot of cases, it was quite ugly because there was no regulation, and so previously to that, folks during the communist days weren't really able to make money doing anything other than the job that they were assigned. So of course, some of the top functionaries were, but regular people weren't. So once the wall came down, people were able to be entrepreneurial and start jobs. That without guardrails and regulation, it led to a lot of scams, and so it led to a lot of aspects of capitalism that were quite ugly, quite frankly. So it was that aspect in doing business there for 10 years that led me to be interested in kind of human behavior and how people relate to money specifically. So I ended up going to business school after that. I sold that business, which was a good introduction into M&A. And for that 10-year period of time, I negotiated a lot of different contracts with suppliers, and so we were importing to the United States and distributing here. So that gave me a good business background. I went to the University of St. Andrews in Scotland, played a lot of golf, never got better unfortunately. But while I was there, got a very good education. I was recruited to England to work with a spin-off consultancy of Oxford University after I left St. Andrews. And Oxford, the name of the company was Oxford Risk, and so our specialty was behavioral finance. And so this training in behavioral finance allowed me to kind of see a lot of what I witnessed in Prague and the Czech Republic in terms of people and their relationship with money. So what my job was as an entrepreneur at that time was to help commercialize their research, and the research that we developed was a tool called Oxford Risk Rating, which was an investor risk profiling tool. And so it was made available to financial advisors in the UK, and essentially you would build out a profile of an investor, and you would look at the risk tolerance, so how much risk they're comfortable taking, risk capacity, how much risk can they afford to take. And they would look at their needs and their goals, and then it would take that information, and then the financial advisors would use their judgment to map that to a portfolio. And so the portfolio meets the needs obviously of the investor, and the whole intent there is to help them achieve their goals in life financially and also what they wanted to set out. So that was very good training. So we used a lot of that same technique in M&A. And so when I left England, I came to the United States and then started managing the U.S. operations for Finometrica, which also does investor risk profiling. Any Finometrica users or former Finometrica users? So we were big on NAPFA, as a matter of fact, we used to sit out there as an exhibitor quite a bit. So I got to know NAPFA members throughout the years. Certainly I'm a strong advocate of the same values and share the same values that NAPFA members do. And that's really, you know, not only from a fiduciary duty of care aspect, looking out for the best interest of your clients, but doing things the right way in terms of values or concerns. So that's kind of how I got my start. I'll explain a little bit more about that aspect. The learning objectives are pretty robust here. Hopefully we'll get through most of them, I think we probably will. The key is developed at the beginning as far as what I want you to understand is that, you know, oftentimes what happens is you'll get a phone call from some group that wants to acquire you or someone that, you know, wants to join forces with it. And so there's a lot of folks that are doing that these days. And so some people just pick up the phone and answer it and say, oh, well, that sounds interesting. But, you know, there's a lot of buyers out there and it's really narrowing it down to the best fit, someone that's going to be able to meet your goals and aspirations, not only of yours personally, but your team and your clients. So develop an M&A strategy, create the plan. So a lot of this is also based kind of on goals-based financial planning. Establish a timeline. So as you know, in financial planning, establishing a timeline and time horizon is extremely important if you want to try and accomplish a goal. So identifying personal team and firm objectives and then identifying the right fit. So again, there's right and wrong kind of fits. It's not always about the money. The money is going to be there. So obviously you want to look at the financial aspects of the deal. But there's more to it than that as far as identifying the best fit. So we want to help you with that. We'll talk a little bit about valuation expectations. Valuations are continuing to decline just because of supply and demand, quite frankly. And how to determine best fit. And then to make sure that we keep everyone in here, we don't want to see anyone leave through attrition because they're bored of what I'm talking about, I'm going to explain how to make a mint julep. So that hopefully is something that will be enticing enough for you guys to say through this presentation. So let's start with the three factors key to M&A partnership success. Strategic objectives is the first and foremost. The second one being partnership criteria. Partnership criteria is really all about compatibility and then firm culture. So what you'll often hear in M&A, particularly in this industry, is the importance of culture. But you know, it's kind of hard to quantify and qualify what exactly that means. And so we'll talk about that and look at it in terms of how you can go about evaluating culture and make a determination if that's going to be the best fit for you. So getting started with strategic objectives, again, the most basic framework with goal-based financial planning is to look at it from a perspective of what's your goals, what are your needs, and the time horizons. So the goals, obviously, is what you want to accomplish in terms of an M&A deal. Typically, you know, we work with sell side on the sell side. And so I'll just kind of briefly explain how we typically work with RAs. And not only in Asheville, we founded in 2020, so right before COVID, perfect timing, I know. And so when I decided to move into M&A, I started out with a company in Atlanta called EGL. And EGL was basically doing kind of international M&A. And so that fit in good with my background. And I always had their fintech vertical. So we were doing essentially a lot of money transfers and international money transfers. So I was in that for a while. I decided that there was a lot of opportunity in RAs. I've been working with financial advisors for almost two decades at that point, maybe 15 years. It's been about two decades now. And so I knew a lot about the businesses from the introduction. A lot of what I was doing for Finometrica was basically strategic alliances, strategic alliances with investment firms like SEI, but also on the advisor stack, so eMoney and MoneyGuy Pro. And so we would integrate Finometrica into that. So I understood a lot about that. Had a lot of conversations. About 95% of the clients that we were working with were RAs, and a lot of them were NAPA members. And so I understood the business well. So when I decided to move into M&A and focus specifically on the RA market, I realized there was an awful lot of buyers out there. And so some say it's 30 to 1 in terms of kind of the ratio. I would say it's probably even higher than that now. In terms of private equity, private equity started out with maybe six dozen. Now there's probably two dozen, if not more, RAs that are backed by private equity. And when I say backed by private equity, they could be straight up owned by the private equity firms, or they could be partially owned as far as minority investors, which sometimes gives the management a little bit more control. But at the same time, there's a lot of private equity money that's being poured into this market. What they like about this particular market is, one, it's pretty consistent cash flows and sticky clients. So the one thing, obviously, no one can control is market fluctuations. But generally speaking, prior to last year, it was basically a 10-year bull market. So there's a lot of money that's in private equity money that's in the business now, in the industry now. And that's going to continue for the foreseeable future. So with all that money, it's driven up prices. So when I looked at that aspect of it, I knew there was a lot of buyers. So I decided we would make referral partnerships. We would create relationships with the acquirers. And so we would pre-screen the requirers. And so we built out the relationships with about 22 different acquirers. And all of them are differentiated in one way or the other. Three things that they all share in common is, number one, that they're all typically over a billion AUM. So that just tells us they have scale and professionally managed. So that tells us they can pull up M&A in a lot of cases. Number two, that they have a capital source in place. So that capital source could be private equity money. It could be longer-term capital as far as ultra-high net worth or insurance companies or some other institutional investors. So typically they have a longer time horizon than private equity money does, even though it's another form of private equity in a lot of cases. And then thirdly, that they've made acquisitions before. So that's very important in terms of this process because, as you know, M&A, if you've experienced it, can be complex. There's a lot of different moving parts. But the post-sale integration of the firms is even more complex. So you just want to make sure that you're not the guinea pig, you're not the first one that's been acquired. And so having some experience through that, learn from your mistakes, and so that helps. So that's kind of the way that we work with advisors on that stage. What I determined in kind of over a period of time, we would make introductions to different firms. And so in a lot of cases, it would be a situation where the seller that we would introduce lacked a level of commitment, right? So in their mind, they're kind of getting their feet wet, sitting on the fence, but didn't really know if they wanted to sell or join another firm. And so that was, that's still really an issue with that particular model. So we also went to representing firms, and now we also represent firms, and we know that if we're going to represent someone, then they're bought into the process, right? They made a determination of, this is what I want to do, this is the time frame I want to do it in, but I need help. And so we'll represent sellers in that regard. So that's the two models that we work with, which gives us a very good window, quite frankly, of deal structure, the differences between acquirers, certainly valuations, so it gives us a very good window working with 22 different partners that way. If we're representing a seller, then we don't automatically introduce you to all the 22 or even 22. There might be some that are in our referral network, but in a lot of cases, there will be some in and some out. So it just depends on fit, and that's kind of what we're going to be talking about here. So as it relates to strategic objectives, a lot of what is driving M&A, and I think it's important to understand this as well in terms of the overall market. So there's about, at this point, 15,000 disparate RAs, and so that leaves a lot of room for consolidation. In other industries, there's been consolidation, and I would say wealth management is kind of late to the game in that regard. Private equity money's obviously seen the same thing, so it's a matter of, okay, let's see if we consolidate and build some national firms. If you think about the number of national firms that kind of pop in your mind outside of the ones that are custodians like Schwab, then there aren't a whole lot, quite frankly, so that's kind of the idea is to build some of these national firms. While I'm on that topic, I'll just mention also that one of the issues was that some of the ones that want to create a national brand thought, okay, well, we're going to do an IPO, right? This is the way we're going to monetize investment, a liquidity event for major partners and investors, so we're going to go the IPO route. So as we all know, Focus already went the IPO route, so everyone aware of that? Everyone knows Focus? Well, you may or may not be aware that, as really only publicly traded RA, they just went private. So they were bought by another private equity-backed group, and so that model didn't work as far as the IPO, and that model didn't work because there's a discrepancy and a conflict between on a public side where you're trying to meet quarterly expectations versus long-term investing. So we're talking about time horizons, and time horizon investing is a long-term endeavor, so it's pushed out, pushed out, pushed out. So that conflicts with meeting the short-term objectives. So that model didn't exactly work, and then the next thing that happened, of course, was Goldman Sachs acquired United Capital. I don't know if you guys are familiar with United Capital, they were at Dallas. They were kind of one of the earlier RA consolidators, platform companies, if you will, and so Goldman bought them, I think, four or five years ago. Goldman, you know, caters to a different client, right? It's more ultra-high net worth. They brought in United Capital, and it was a situation where it didn't work out. So it didn't work out because it was a different client, right? Client size, different needs of the clients themselves, and so they sold to a private equity backed RA consolidator. So the question is, you know, where does this all go? That's a great question. So that's part of the understanding you have to have going into this is you don't actually know where it's going because a lot of private equity companies are buying RAs from other private equity companies. So it's kind of like musical chairs, when the music stops, who's going to be left standing? So that's one of the issues right now that we're kind of facing as an industry in that regard. So what's the goal? The goal is essentially two goals that we typically see, and one is exit, and the other is strategic. Now, there's typically an age factor there, not always, but from a demographics point of view, not in this room, of course, because I see a lot of young folks, which is all relative, of course. But from an exit point of view, in a lot of cases, the aging demographic, the majority of financial advisors are approaching, if not already at, retirement age. Retirement age typically being 65, and so that's one of the compelling reasons it's a liquidity event, I need to fund my retirement, and so that's retirement. The whole part of it is, you know, how do I fund my retirement? That's a great way to do it, given the valuations, that's certainly a great way to go. The other side of it could be health. If COVID taught us anything, you know, life expectancy isn't exactly a guarantee, and so, you know, people for health reasons, as a matter of fact, my father's financial advisor died of pancreatic cancer, and so, you know, that was rather sudden, and then there's other groups obviously that might have experienced the same thing previously with folks. The one thing that I find interesting about the exit side of it is having worked with financial advisors as long as I have, you know, you would think that burnout would be one and people, I don't like this job anymore, I want to do something different, but that's rarely the case, which I think is a great thing, it's rarely the case because typically you guys love what you're doing, right? You may not love it every day, but you love what you're doing in a lot of cases, most folks that I see do anyway, and so most that I talk to, and that's really not a compelling reason for them, because they love the job, they love what they're doing, the money is obviously good, and so that's not one of the reasons. The other side of it, you know, the age factor and the demographics for the exit makes sense. On the other side of it, strategic, so if you're a younger advisor or even someone that's approaching retirement age, there could be a situation where you have a need to grow, and so because of the consolidation that's going on in the industry, it is harder to compete and the stiffer competition means it's harder to win business, and so that's part of it, you know, in a lot of cases financial advisors, part of the job they don't like is the compliance side of it. Does anyone love compliance here? So that's typically what you'll hear is, you know, we'll take compliance off your plate, all the acquirers will say that, which is true, so that's a huge benefit, we'll take compliance off your plate, you're going to spend more time with your clients. So that's, yeah, well we won't ask who the acquirer was, but that's good information. That's good information to know, but that's part of the due diligence also, right? The due diligence is how are you going to take compliance off our hands? What are you going to do exactly? So that's questions you need to do beforehand as far as risk mitigation is concerned. The other side of it, again, is scale, and so you're trying to get bigger, you're trying to grow in a situation where you need help doing that, and what I often see is that the RA owners and the lead advisors are wearing so many different hats, not to mention on the HR side, you know, that it's hard to grow because all the attention is the day-to-day business activities, and so if you can take time off to do something else, have someone else manage that aspect of the business that you may not like, then that certainly makes it a lot easier for you in terms of not having to handle all the day-to-day, and as a business owner myself, you know, it can wear on you. There's no doubt about that if you have to make all the decisions, which is the case a lot of times. Better client experience is a huge part of that. Better client experience could be, we're going to add a technology advisor portal or we're going to make it easier for our clients on the reporting side. Better client experience, more investment options, and so it's a situation where you never want to go into M&A and provide a worse experience, obviously, but you need to always think about your clients, you know, why they choose you, what's differentiated about you guys as opposed to other firms, and so providing a better client experience is a big part of that. And then, most recently, I would say that one of the bigger drivers is talent, and so there's a talent shortage in the industry, I would say, particularly with experienced advisors. I know there's some folks, you know, students in CFP programs at the University of Georgia, which is a great one, so, you know, but Texas Tech has another great one, so there's a lot of young talent coming up, but experienced advisors are hard to find, and so it's looking at it from a perspective of, you know, how can we bring in talent and who can help us do that, and so one way to do that is acquire a firm or have a firm join you or merge in with you, and that's a great way to acquire talent that way. So strategic objectives as far as needs are concerned, needs are basically what you want to get out of the deal, right, so the needs as far as what you want to get out of the deal relates to, in a lot of cases, the financials, and so there's typically an up-front payment, and that up-front payment could be cash and or equity. If it's cash, then you'll typically want a percentage of that, and I typically don't talk about valuations until we get to, you know, if we're representing a firm, then we'll start with a valuation, right? Here's kind of the valuation expectation, and in everyone's mind, they already have some kind of valuation expectation based on what they've read or what they've seen or who they've talked to other folks, so you've got the valuation expectation in your mind. Then it's a matter of looking at it from a needs point of view. How much do I want up-front, and then an earn-out. Almost all deals are going to have an earn-out. The earn-out is basically at the year of your one or two, so it could go one, two, or three years, sometimes up to five. It just depends really on your needs, so that's something that needs to be discussed at the beginning because if someone can't meet your needs or your goals, then you're going to spend three, four, five, six months talking to one, or two, or three, or four groups that aren't able to meet your needs, and then it's just a total waste of time and resources, so that's something that you should know from the beginning. From a strategic point of view, this is what my goals are, and this is what my needs are, and so the earn-out, again, is important to understand. Earn-out is typically, there's a downside. The downside relates to retained revenues, so your client attrition is something that you're obviously trying to avoid, but on the other side of it, it's a situation where retained revenues, there's a certain percent they have to retain, or you don't get the earn-out, so it could be scaled, or it could be, hey, if you don't hit 95%, you don't get the earn-out period, so that's also part of the negotiation, but you need to understand that up front because if that's not palatable to you, then that's obviously not a group that you need to be talking to. If we're going to scale it, if we're going to negotiate, again, it's negotiation and situation, well, let's look at different numbers, then that's a different story, but take it or leave it, deals are out there. On the other side of it is the upside, and that's typically tied to growth, so if you grow at a certain percent, then there's additional earn-out for you there, and so part of the whole aspect of, if you're looking from a strategic point of view, we want to scale, we want to grow, then you need to ask, how are you going to help us do that? So you need to understand how you're going to help us do that, so one is to, that's my goal, that's what I want to do, that's our strategic objective. The other side of it is that, hey, I want to make sure I hit those numbers for the earn-out, so make sure you're clear on that. As far as valuation, revenues is pretty straightforward to apply a multiple on your revenues. The other is EBOX, so Earnings Before Owner Compensation, and the other is EBITDA. Now, they're going to look at all those numbers, you know. Anyone that says we're just going to give you a multiple on revenues could be the case, but they want to see their earnings, too, because that's what's attractive to acquirers is the fact that these cash flows, consistent cash flows in RA businesses, are great for them and great for you guys, so, you know, it's a very important aspect of it. And then EBITDA typically is looking at it from the perspective of how much money is left in the business, so I would say kind of the difference between EBOX and EBITDA, size of firms, in a lot of cases with firms that are being evaluated based on EBOX, maybe one, two, or three advisors, not always, but just to give you an example. So it could be one, two, or three advisors, and at the end of the year, they're taking their distribution and they're taking all the money and all the earnings out of the business, and so they're not reinvesting it back in the business. EBITDA measures oftentimes if it's a bigger firm, you know, the way that firms typically grow, and I think DFA has done some research on this. It's really good. Schwab does great benchmarking. You know, they're typically reinvesting in their business, and they're reinvesting in their business through a better client experience, but also by adding talent, so that's an important distinction, I think, between a business and a practice in a lot of cases. Oh, that's also show me the money. So that's where the show me the money part comes in, right? So it's when you're having a negotiation, obviously, you want to meet your goals and needs, but you're also looking for the highest valuation. I don't think anyone's surprised by that one. Okay, so this typical stage of an M&A process, all in all, we're looking at about nine months there, and that's more on the conservative side. I would say six months to a year, if you're thinking about your timeline as to how long it's going to take to close a deal. You're having multiple conversations with multiple groups to find the right fit, and so that's really where a lot of the time is spent, particularly if you're working with non-initial, you know. That's where we spend a lot of time is making sure that there's a good fit, right? And the good fit could be a good cultural fit, but it also could be relating to the fact that, you know, there's certain aspects of one partner, a choir that's attractive versus others. So you really want to have a good understanding of that. So, you know, a good bit of time, regardless if we're representing a seller or we're going to introduce them to someone in our, one of the choirs in our referral network, is understanding their strategic objectives. So understanding their goals, you know. Is it that you want to work less hours? Obviously, you want to find a good home for your team, but that's an important part of the process is understanding what you want in terms of what you want to get out of it, too. So that's kind of setting the foundation of that. I'm not going to go through each of those, but I think it's important to understand, you know, kind of the process here. This is kind of accurate but not fully in terms of the way that it's done in RAs, but that's kind of the typical aspects of it. As far as the solicitation of interest, so that's a proposal. So a proposal will be essentially laying out the deal for you before you get to a letter of intent. The letter of intent is more formal. It could be once you sign a letter of intent, then we move from the letter of intent to the asset purchase agreement. And so there's a lot of due diligence involved. So the way that they arrive, again, at the valuation is that there's going to be a calculation based on multiple factors. And so the data requests keep coming, right? So the data requests keep coming. And so part of this whole process is really dependent on the seller and the seller's ability to produce the content and the data within a reasonable time frame. And so that can sometimes drag on the process if they're unable to do that. And so you just need to know going into it that that's really an important part of the entire process is that you deliver the financials and a time set for it. And so it'll start out, you know, someone will look at P&L for the last three years and a balance sheet for the last three years. But that's kind of just the starting point. So it gets deeper into that. And so that's an important part of the valuation. Now, in terms of this aspect here, evaluate and negotiate by playing interested parties against each other. That's kind of putting it bluntly, but at the same time, you know, that's the M&A game, if you will. An M&A game is that you're essentially using one deal to get a better deal. You're ultimately trying to get the best deal from the best fit, right? And so it's important to understand between kind of the initial proposal and the final offer that there's some wiggle room there. And so if you're good at negotiating, then you can get there. If you're not, then you should probably work with an M&A advisor, right? And so you don't know if you're going to have the best offer unless you've already had other offers. So that's the basis of comparison that you need. And the basis of comparison, again, is comparing one offer to the other. And so all of them should start with the fact that they're going to fulfill your needs and your goals. And then an important part of that is that it takes a good two months or so to get to, once you get the LOI signed, to get all the legal documentation. And then another part of that is client consent. So that's different in this industry. You have to get your client's consent as a regulatory aspect. So that's not a given either. And so it's important that whoever you're going to partner with, you can position it to your clients and say, this is going to be better for you. We're joining forces with this particular company for the following reasons, and position it that way. So partnership criteria, let me see how we're doing on time. So partnership criteria is essentially the compatibility aspects of it. So you want, and this goes back to kind of the investor risk profiling that I talked about earlier. So you're looking for, in investor risk profiling, you're looking for the client's risk tolerance, capacity, their needs, their goals, and then mapping that to a portfolio. So that's all about the portfolio and the compatibility between the client, know your clients, and the compatibility issue. So one of the important aspects there is the fee structure. And so you want parity around fee structure. And so if someone's charging 300 basis points, and yes, they're out there, and you're only charging 100 basis points, then that's obviously a mismatch. Realistic, that's kind of a stream. We'll take 100 basis points in a scale, obviously, based on assets under management. But the point being that you're always looking for parity around the fees. Your customers are gonna be thrilled if you tell them their fees are gonna go down after the transition and transaction, not so happy if their fees are gonna go up. So you're looking for parity around fees. The other aspect of that around fees is billing. So on the billing side, you're gonna look at it from a perspective, some bill in advance. Does anyone here bill in advance? And then what about in arrears? You see kind of the mismatch there. So a lot of times they'll grandfather it in, but it also can be a complexity or added complexity. So I'm not saying it's not something that can be overcome, it certainly can, but it helps to have that aspect out of the way. Or at least that understanding, that's something that you need to be discussing. How are we gonna handle this post-transaction? And how am I gonna position that to my clients if there is a change? Service providers, so a big part of that is the tech stack. And the tech stack, financial planning's usually a big part of that. So the difference between having, when I was working with Intermetrica, a lot of what we did was integrating with financial planning. And so, you know, gold-based financial planning, MoneyGuy Pro, you know, it's more about gold-based, whereas eMoney is better for cash flow. That's my, any eMoney users? And then what about MoneyGuy Pro? Yeah, so I notice with the exhibitors out there, there used to be like 10 different financial planning software packages, and now it's like, so I guess that's an example of consolidation. So service providers, Custodian's another big one. So now that TD's been consolidated again by Schwab, you know, it's basically a duopoly. There's other ones out there, but they are handling the vast majority of assets. And so, you know, if you're working with one or the other and you have to repay for your clients, that can be a big drag. And it could be a situation where you lose a client over that. And so that goes back to client retention and the earn-out aspects of it. So repaying for your clients is a hassle. Now, a lot of the bigger acquirers will have relationships with Schwab and Fidelity, and maybe a couple other custodians, sometimes. But a lot of times, they'll at least have those two. So that makes the job easier. They've learned from their mistakes. They understand, okay, well, this has been a big hassle before. So they'll have relationships with both. So it's a much easier transition for you. So firm size is another one. Now we're up to the point where, speaking of national brands, you know, we've got one that's almost 100 billion, if not above, getting there anyway. And so that's a pretty darn big firm. But a lot of them are a billion plus as far as the more active acquirers. And then there's a whole plethora of smaller groups that want to acquire, right? And I'm not saying that smaller groups aren't good at it or can't do it or aren't going to be successful. They certainly can. But, you know, it can be an uphill battle. They have to go out to get a loan from a bank. And I know there's a couple here that will make loans to you. I saw it on the Exhibit Hall. But in the interest rate environment, that makes it more difficult. So that's why it's important, again, to have a capital source in place already that may or may not be a bank loan. So that's one aspect to look at in terms of firm size. Service offering. So service offering could be, again, it could be a situation where alternatives or some aspect of better investment options, obviously alternatives aren't going to be for everyone, but they can be for ultra-high net worth or higher net worth individuals or someone that wants them. So it's kind of a good way to diversify. I'm not going to go into investments and express my opinions because they don't really matter. But that's an important aspect of service offering. Again, you just want to make sure you're delivering a better client experience, whatever you do. Client types. This is extremely important when you're looking for a partner because if you're serving, you know, mass affluent, then that's not going to work too well if you partner with someone that's serving ultra-high net worth. A perfect example of that is going back to Goldman Sachs and United Capital. So it's a situation where total different client types and that didn't work out too well. And so that's an important consideration in terms of client type. Same thing if it's ultra-high net worth. So oftentimes firms will say, you know, at the beginning of discussions, what's your average client size? And so that's a good way to look at it. That's not always the case. You know, I always argue that median client size is a better indication, quite frankly, than average client size because it would get skewed if you have clients that are ultra-high net worth and everyone else is, you know, between a million and five, let's say. So that's another important consideration. Geographic location. So that can be important if that is important to you. But it's not as important as it used to be. So since COVID and the fact that you can do all these video calls and people moved, and I'm sure a lot of your clients moved during COVID before or after where the case might be. But, you know, it's not near as important as it used to be in terms of geographic location. It may be the fact that, you know, you want to leverage their office space or something like that, which would be important as far as having someone else there. It's also important as far as succession. So if something happens to you, you have someone nearby that can manage your clients. God forbid something happens to you. And succession is a huge part of it. Going back to goals again, we write a, like, a quarterly piece on what's called our RA, M&A advice series. Anyone read that, by the way? No? You guys need to get on the list. Oh, so, yeah. So that's, at first, a succession piece. You know, that's a big part of it in terms of kind of one of your goals again. Fee-only versus hybrid. This is important for NAPFA folks. You know, typically for a fee-only firm, fee-only firms are not going to want to acquire a hybrid, right? So there's just kind of a mismatch in cultures there oftentimes. But on the other side of it, you know, a hybrid firm may want to acquire a fee-only. So it's a lot less important to them. But that's an important consideration. Now, probably the most important aspect in all of this in terms of partnership criteria is investment philosophy. So having worked with financial advisors now for about two decades, it seems like everyone has a bit different kind of investment philosophy tied in within the passive and active and tactical. You know, there's market timers. And so, you know, there's just individual stocks versus ETFs versus mutual funds. So it's a situation where you've been telling your clients for the last 10, 15, 20 years that index-based funds are the best for them because ultimately in the long run, you know, stock pickers' kind of results will fluctuate. Top 10 will end up in the bottom 10 and work their way up and kind of cycle that way. Not always, but that certainly can be the case if you look at some of the research that's available. So it's very difficult to tell your clients, hey, we're going to join this firm. And by the way, we're going to change your portfolio because the firm that we're joining forces with does things a lot differently than we're doing things. So that's kind of a hard sell. That's kind of it on the partnership criteria side. Now, firm culture is really an important aspect in terms of making sure that there's a good match. So I like this kind of description, if you will, because it's about behavior. So the ways people in the organization behave and the attitudes and beliefs that inform those behaviors. So that's kind of the, you know, that was probably written by an academic that expressed it that way. But this part about the way that we do things around here, basically that sums it up. So the way things we do, you know, the way we do things around here is often tied to looking at it from the perspective of how you treat each other and how you treat your clients. And this is the way, this is the model. So it's kind of the belief systems and the values that you have, but it's the way we do things. And just working with RAs as long as I have, you know, from a process point of view, it seems like no one does anything exactly the same. But from a cultural point of view, I think NAPFA's a perfect example of that. I think as NAPFA firms, you guys all share some common beliefs and what you feel like is the best way to treat your clients and the best values in terms of how you go about doing that. And so it's more value-based than just, hey, we're running money. So here's the top five reasons that M&A deals typically fail. And the number one that you can see there is incompatible cultures. And so incompatible cultures, you could make a determination that ultimately, hey, I didn't do my due diligence on this firm. And I just met with the M&A team. I didn't meet with other folks. So you didn't really have a very good understanding of what the culture was. You just looked at the deal that was on the table and thought the deal was great and that was going to work out best for you. But ultimately, what is important to understand is that there's an after the deal. And the after the deal is the post-sale integration of the firms. It's also taking over the client relationships. Not necessarily taking over the client relationships, but understanding that, you know, there may be a different way of doing things. So you definitely want compatibility around the cultures for those very reasons. And again, that's the top failure. Synergies are non-existent. That kind of goes back to compatibility, too. You want to provide the best client experience. And the best client experience is making sure that what you're doing now is going to be different than what you're doing in the future and different, I mean, a better client experience, right? So something that they can buy into, something that's valuable to them. Overall. Sorry? What is the percentage of the telephony overall? You know, I think that's kind of a question is how you would look at it as far as failures. So failure could be that there's a breakup, right? I think going back to the earlier scenario that I mentioned, that was a failure of a lot of reasons in terms of that. But, you know, a failure could also lead to the fact that clients leave as a result of the transaction that you've done. So that's kind of dependent as far as the incompatible cultures and why. So that's basically respondents that said, this is why it didn't work. And again, you know, the numbers may add up, but if there's incompatible cultures, then it relates to all kinds of different conflicts, right? Conflicts between the owners and conflicts between employees. And so it's just kind of a mismatch. What was it, Bank of America, Merrill Lynch? And that, yeah, I think that was the deal that was done. That's probably a good example of that. Those are two different cultures and don't necessarily fit within each other. You know, and then inability to manage a target organization. So in some regards, if you like the autonomy that you have and you want autonomy, then that's an important thing. But also in this business, you have to understand the dynamics as it relates to risk management. You know, not everyone could be running their own portfolios if they've made 10, 15, 20 different acquisitions or even two or three. So it could be a situation where there has to be some consistency in terms around the investment philosophy and the portfolio management. So this is the part about firm culture and the dating game. So it's a lot like a dating game in that regard because you're ultimately looking for the right partner, right? So before you get married, there's a courtship beforehand. And a courtship is really the due diligence that you need to do to understand what their culture is. And so these are some good tips for you. So the first question is, do you like them? So, right? So that's an automatic question. And do you like them is you don't want to get in a position. Any divorcees in here? You don't have to raise your hand, but you can just nod. So, right? So, you know, similar situation in terms of that situation. A lot of divorces in my family. I haven't been divorced. I'm sure my wife might send me a notice soon, but that's, you know, that's another aspect of it. But that's a great question when you're talking about M&A is exactly that. And that's, do you like them? So you don't want to get in a position where, you know, you're not sure about that. And then you do a deal. And then you're tied together and you find out that they're making your life a living hell. And all the things that you loved about your job, you don't love anymore. So that's an important aspect of, do you like them? You know, do you share common, excuse me, common values, similar likes and dislikes? So the process that you use to understand that is that, you know, you have to have, again, a basis of comparison. So if you have a conversation with multiple groups, then multiple groups will give you that basis of comparison whether you like them or not. So in a lot of cases, you know, we worked a representative seller and they'll like multiple groups, you know. Maybe they'll like more one. Or if it's an equal situation, then it comes down to other factors. But you really need to start with the culture and that's an important consideration is whether or not you like them. The other aspect, again, is how do they compare? So if you're having multiple conversations, not just with necessarily the M&A team, but the leadership, the management, the folks in operations and investment management or whatever the case might be. So that's an important aspect. And the way you get to do that, a lot of the things that we're doing are video calls these days, which is great to do a Zoom call. But, you know, there's really no substitute for face-to-face interaction. And so a great way to do that is visit their office, them come and visit you. And so that's a great way to do it as far as office. So you can go to their office and you can see how things are done there. They can come visit you. You can kind of look at what changes need to be placed, particularly around branding. I think one of the aspects of RAs that, you know, I would say is a shortcoming is on the branding and the marketing side. So if you can partner with someone that's actually good at marketing and does it well, you know, what impact is that going to have on your office if they're going to change things around for you to make it more appealing or to make more of a common and consistent view of what the clients see. So if they're going to go to your office or they're going to go somewhere else, you know, there just needs to be some consistency there in terms of what they are trying to represent through their marketing. Outside opinion is a very important aspect of it. Outside opinion is typically if we're representing a seller, then we'll have them talk to groups that have already been acquired. And that goes back also to our referral method that we want to make sure that we've met acquisitions before because we don't want you to be the guinea pig. And so an important thing there is outside opinion. I typically won't be involved in the call. I'll coordinate it between the buyer or the seller, rather, and someone that's already been acquired by the firm and just let them talk. I like to have an agenda first instead of going kind of willy-nilly, I guess would be the word. Have an agenda in terms of what you're trying to accomplish in that call and what you're trying to accomplish. Well, what was your experience like, you know? What was your experience like during the transition period and what's your experience like now? So that's an important aspect of it. Another valuable aspect here is working with a financial advisor or an M&A advisor in this case is someone that can coordinate these, someone that's going to lead you to the right firms, right? To begin with, someone that's going to be compatible that has a process in place, process of elimination to help you arrive at the best fit. So that's one of the benefits. Another aspect, typically, that we see, there's kind of a mismatch between the needs of, let's say, the founders of the firm, the initial founders, and the next gen. So that can be a difficult situation that can lead to some conflict if the needs are different and the goals are different. And so, you know, a lot of the role of the M&A advisors kind of mediate that, make a determination of making sure that everyone's individual needs are met, but at the same time, making sure that ultimately the deal's structured in a way that meets everyone's individual goals and needs, but at the same time, that's going to be the best fit for everyone. So there's a lot of diplomacy, I would say, involved in that and a good bit of mediation if there's different needs and conflicts in terms of that. So here we go. I think we only lost one person, and I appreciate you guys sticking around for this in terms of the mint julep. So I haven't actually made one myself, but the plan initially was to bring out a big tray of mint juleps for you guys. Unfortunately, the powers that be determined that if that's the case, since this was a 9-20 presentation, you probably wouldn't make it through the rest of the day. So I apologize for that, but it's something out of my control. So anyway, any mint julep fans here? Yeah, great bourbon in Louisville. No doubt about that. And so as far as resources are concerned, if you're not getting our R&A, M&A white papers that we do on a quarterly basis, then we have resources here. I think they're going to share the slides, so you just click that. This is kind of the whole process, the whole point with the three factors key to M&A partnership success was based on white papers that we wrote. So each one's kind of detailing strategic objectives, partnership criteria, and firm culture. The latest one that we did was a two-part analysis on secession planning, the stark reality of secession planning, and that was based on one was internal secession and the other one was external secession. So the problem with internal secession these days is the fact that there's so much competition between the buyers and the imbalance between supply and demand that it's driven up valuations, which is a good problem to have if you're trying to sell the firm, but at the same time, not such a good problem for the next gen because typically, if you have a next gen, the idea is, okay, well, the next gen's going to be the successors. They're going to purchase the firm from me or us, and then what happens now is the valuations are so high that it's very difficult for the next gen to afford the firms. So essentially, in a lot of cases, they've been priced out of the market, and so if they've been priced out of the market, then you have to go through your options, and if the option is not, hey, we're going to do this internally, now maybe that doesn't mean that you can't provide some equity to the next gen now where they can become minority owners. As a matter of fact, we're working with a client on exactly that, is that they're providing, put a plan together where the next gen will be minority owners, so they're going to acquire equity in the firm, but ultimately, realistically, there's no way that they could buy the firm later on unless they win the lottery or something, right? So you just, you run the numbers, and you make that analysis, you make a determination, this isn't going to work. The other side of that is from a next gen point of view, you know, it's also a risk tolerance view, or a risk tolerance aspect, and a risk capacity aspect, so if you're in your 30s or 40s, and, or younger, a little bit older, and you have kids in school, I mean, I've got two kids in college myself, one at Tufts, so that's not exactly cheap, and so, you know, that's, college considerations is one part of it. You've got a mortgage, you know, interest rate environment, you've got car notes, and all these different other aspects, and so, do the numbers add up? Will you actually afford to buy the firm? In a lot of cases, the answer to that is no, and so, once you've run through those options, then what are the options as far as external? And the options as far as external is M&A, right? And so, you're looking for an external partner, and it could be a situation if one of your goals is, hey, we want to provide equity to our next gen, then you're looking for a partner that may have a stock option plan or there's some kind of a plan available to them where they can have equity in the firm, because oftentimes, if it's a situation where, you know, there's going to be hard feelings there, because if you think that, hey, you know, I've worked for this firm for 10 years or 15 years or 20 years, and I'm going to be the successor, and they're a parent, and it doesn't work out that way, then, you know, you're not going to be too happy about that. And so, not really the owner's part, you know, it's not really his fault. It's fact evaluations that have gone up the way they have. So, you have to look at some contingencies there as far as what options are available to make sure that you can fulfill that goal. The other aspect of it is, you know, and I just heard this, as a matter of fact, yesterday from an advisor that one of their younger next gen are leaving the firm because of that reason. And so, they're leaving the firm for the next, they can't afford to buy it. Their feelings are hurt, so, hey, I'm going to go somewhere else. Well, that's fine, but that's not really a win-win. That's more like a lose-lose, right? So, in that situation, it's important to make sure that, you know, if that's part of your goals, and it should always be a goal, is to make sure you can find a good home for your team and if one of those goals is to provide equity, you can do it beforehand. Takes years of advanced planning to do that, by the way. You know, it can't just be, hey, I'm going to sell you 10% of the firm if it's valued at, you know, $10 million or whatever the case might be. So, it has to be a plan in place where you're doing that, and so that's a key consideration there. I think that about does it. We're based in Atlanta. If anyone's in Atlanta, if you have any questions, let's go there. Yep. We bring what we can get. It's not everybody can reach out. Yep. You know, we joke about the way we make them go away. It's asking about valuation to start back up. You know, we're all on that board. RIA, you know, the number of communities, Money Guys Road, Bryant Capital, E-Money, Custody of Profitability, Offer, Passive Straight. There's a bunch, right? Why is it that it seems like valuations are so hard to get that data out there? Are they really that different? I mean, there's so much info on ADVs that we haven't discussed. Well, that's a lot of work that I do. So, the question is about valuations, really, and a lot of the work that I do is with valuations. I mean, ADVs. I mean, when you're doing an investor risk profile and you're looking at ADV, you can tell an awful lot of ADV as far as client types. You can find a lot of information on ADV, which is really, I think, in the only industry that I'm aware of where they're making privately held companies' information public like that. They can find a lot of that information. To get to the point about the valuations, you know, there has to be a due diligence process as far as running the numbers and understanding what the numbers are because, again, it's going to be based on either revenues, EBOC, or EBITDA. And some, because there's a lot of money out there, you know, the way that the deals are structured with a valuation, there's going to be the upside and downside, too. And so, again, the earn-out aspect of valuation is not guaranteed anyway. So, it's typically a range. So, if someone's saying this is the static number, right, the static number of $10 million, then that's not exactly accurate. You need to dig a little bit deeper down there. What's the downside? You know, what's the earn-out look like in terms of the upside and the downside? So, the valuations can differ based on the fact that if it's someone that can afford to make the acquisition or not. But then again, you know, you may not always, obviously, want to go with the highest valuation just because it's the highest valuation. If it's not a good fit, you're going to lose clients as a result of that, then that's going to come back and haunt you. You're going to make your life a living hell. That's not worth the money, right? So, you're looking for, obviously, the highest valuation from the best fit. And the way you do that is that, again, you know, you're looking for a base of comparison and you're trying to drive up the price as the seller, but you're not doing it to a point where you always have to have goodwill, right? So, I heard the other day a guy describe it as I'm not going to try and gouge them, but at the same time, you are definitely looking to get the highest valuation for the, you know, the blood and sweat and tears that you poured into your company. You said that hybrids were won by CEO's, but CEO's were won by hybrids. Are there actually NAPLA CEO members that would sell to a hybrid? No. The question was, you know, are there any NAPLA members that would actually sell to a hybrid? And so, the answer to that is no. None that I'm aware of. Yes. On your slide about the timeline, when you add up the long term time, because it says there's about 35 weeks, that's going to take years. Years? No. It could take years if you want to drag it on for years. Yeah, but years maybe to find the right fit. Well, again, it depends on your process. If you're just waiting for someone, it's kind of like the passive approach versus the active approach. So, if you make a determination, hey, this is what we want to do, then what we would do if we were representatives, we'd create a short list, based, again, on your strategic objectives, three factors key to NMA partnership success, and we'd start with those 10. And the idea is to start with those 10, narrow it down to five that are going to make, you know, there are about three to five that are going to make offers so you understand what the offer is, and then you can use that as a basis of comparison. But if you're just waiting for someone to call you on the phone and make a determination if it's going to be a good fit, that's typically not the approach that you want to take, particularly if you have a determined timeline. So, if your timeline is multiple years, then that could be the case. Does that make sense? Any other questions? Yeah, given the type of interest rate and the type of valuation, it seems like the higher valuation would make it a good time to sell, but there are enough sellers in the country to make such a higher price. So, where are you going from the fact that you're finding somebody? Oh, finding someone to buy? Well, the question is exactly if you're a buyer, then essentially, you know, it is, well, so if you have to go to a bank, right, so that's when I mentioned we look for three criterias in our referral partners. They have a source of capital in place is an important aspect of it, and so that's the thing. So, what I've seen in a lot of cases is that if it's a smaller group, or even a bigger one, and they're having the conversations and they go through this whole process of discussions and the dating game, then they get down to the altar, if you will, and it's time to close the deal, then the buyer says, our financing fell through. But, we've got good news. We've got another bank that we're talking to, right, and they're, you know, this is almost positive. Well, that falls through. So, then the next thing, so if they don't have a source of capital in place, that's kind of the risk mitigation is making sure, that's usually the first words out of my mouth, right, is how are you going to pay for this? So, I think that was, you know, a good way to kind of mitigate that risk is exactly that question. They say, hey, we're going to go to a bank and get a loan. Well, is it a line of credit? Do you already have a line of credit in place that's established? No? Well, I'll tell you what. Get a line of credit in place and then give me a ring when you've got that done. So, you want to see a source of capital in place, that's a good way to kind of manage that risk. Any other questions? All right. Thank you. Wish I had mint juleps for everybody.

Tyler Nunnally

M&A partnership success

compatibility

fee structures

service offerings

investment philosophies

evaluate

negotiate

potential partner's culture

valuations