It goes without saying, but price is still important in M&A deals. However, Forte Asset Solutions principal Steve Prendeville has noticed a shift towards valuing cultural fit in the process.
“The headline price is obviously important, but it’s rarely the thing that determines whether a deal is successful or not,” he told the latest episode of the ifa Show podcast.
“We’ve seen plenty of situations where the numbers stack up on paper, but if there isn’t alignment between the buyer and seller, the deal can unravel very quickly.”
A significant factor in this is importance of interpersonal relationships within the advice profession. As Prendeville explains, non-alignment can prove a costly mistake for a business, particularly when it comes to retention.
“If advisers don’t feel aligned with the acquiring group — in terms of values, client philosophy or how advice is delivered — then retention becomes an issue, regardless of what was paid,” he said.
“Where culture isn’t aligned, you often see advisers leave, clients disengage, and the earnings you thought you were buying start to erode.”
“That’s why paying a higher multiple for the right business can actually be less risky than paying a lower price for a business that doesn’t fit.”
At the end of the day, advice businesses only function as well as the staff and can only build good reputations through good advice, making any M&A deal an investment in people more than it is an investment in a brand.
“What buyers are underwriting isn’t just the revenue — they’re underwriting people, behaviours and how the business operates day to day,” Prendeville concurred.
“The best buyers spend as much time understanding how a business works and how decisions are made as they do on the financials.”
For sellers, Prendeville emphasised that this people and culture first approach is also a good practice.
“The best outcome isn’t always the highest number on day one. It’s about where their people end up, how their clients are looked after and whether the business they’ve built continues in the way they intended.”
He added: “That’s particularly important for founders who are staying on post-transaction or transitioning clients over a number of years.”
Prendeville also enforced the point that in a time where the advice market continues to consolidate, cultural alignment becomes even more important, especially if multiple new businesses are being integrated over time.
“The groups that get this right are the ones that are able to do repeat transactions successfully, rather than one-off deals that create problems later,” he said.
“Ultimately, the deals that succeed are the ones where both sides feel aligned on more than just price.”
