M&A and Financing Power Lunch

PRESENTED BY:
BRAD BUEERMANN – CEO, FP TRANSITIONS
SCOTT WETZEL, JD - MANAGING PARTNER, SUCCESSION LENDING
AARON HASLER – MANAGING PARTNER, SUCCESSION LENDING
SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391
M&A and Financing
POWER LUNCH

? ??
Supply and Demand Dislocation
RESULT: What’s causing the dislocation?
SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 2
100,000
advisors set
to retire by 2025
98%
of independent
advisors never retire
50
buyers for every
advisory practice seller

3
Who is Succession Lending?
Conventional & SBA
Correspondent Lender
providing timely and cost
effective bank financing
to independent and
registered financial advisors
to promote the preservation
of small business
ownership in the financial
services industry.

Recrafting the Conversation: Buyers and Sellers
• HISTORICALLY: Approaching sellers with seller’s note:
• What sellers hear: “I do all the work and take all the risk.”
• TODAY: Revisit prospective sellers with a new message:
• What sellers hear: “I can finally retire, receive a fair value
for my practice at close, and not take on all the risk.”
4

Structural Considerations - SBA vs. Conventional
SBA
• Variable Rates
• Longer terms – 10 year
• Lien against personal property
• Cumbersome
• 151 documents for close
• 3 – 6 months to close
• Why? When conventional is not
available.
Conventional
• Fixed rates
• Reduced terms – 7 years
• No liens on personal property
• Efficient
• 27 documents to close
• 30 – 45 days to close

Eligibility Considerations - SBA vs. Conventional
SBA
• Eligible
• Complete change of
ownership
• Seller must not remain
with the business 12
months post-sale
• Ineligible
• Partial buyouts
• Partial sales/cash out
Conventional
• Eligible
• Tranche sales
• Partial buyouts
• Complete change of
ownership

Mitigating Factors
• Loan Amount
• Character (credit)
• Cash Flow
• Loan devalue
Succession Lending’s
Standard Loan Structure*
Succession Lending’s
Standard Loan Structure*
ORIGINATION
FEE
(can be financed
into loan amount)
2%
YEAR TERM
7-10
FIXED
YEAR
AMORTIZATION
7-10
* The above does not constitute a proposal or a commitment to l end.
The fee, rate, terms, and conditions are for information purposes only .
Former underwriting and approval are required.

PRACTICE VALUATION:
Optimizing Seller Factors
BRAD BUEERMANN – CEO, FP TRANSITIONS

10
ABOUT FP TRANSITIONS
VALUATION
FP Transitions has performed valuation and benchmarking analysis
on over 9,000 independent financial practices.
MERGERS & ACQUISITION
FP Transitions has completed over 1,800 transactions. Its unique
“non-advocacy” approach has resulted in acquisitions with the
highest client retention rate in the industry.
INSTITUTIONAL CONSULTING
Though engagement with financial institutions such as LPL,
Northwestern Mutual, Mass Mutual, Wells Fargo, Fidelity, and others,
the firm has created valuation and succession protocols commonly
used by advisory practices across the country.
SUCCESSION PLANNING
With over 400 succession planning engagements for RIA’s, RR’s, and
Insurance based Advisors. FP Transitions has created nearly 600
next generation owners while building sustainable advisory
businesses.
The FP Transitions team:
• 40 total members including:
• Consulting (5)
• Valuation (6)
• Analytics (6)
• Legal (5)

© 2018 FP Transitions
11
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
0 100 200 300 400 500 600 700 800 900 1000
GRM
Valuations
X
X
X
ACTUAL FP TRANSITIONS’ VALUATION DATA

12
What you need to know…
•Avg. Recurring GRM: 2.44 (Range 2.22-2.84)
•Avg. Non-Recurring GRM: .96 (Range 0.26-1.30)
•Avg. Down Payment: 32.0% (Range 20% -40%)
•Length of Seller Financing: 3 to 5 Yrs.
•Avg. Client Retention Rates: 95%
2017 MARKET DATA

13
DRIVE
DRAG
• Recurring Revenue
• Revenue Growth
• Client Growth
• High $ Clients
• Enterprise Strength
• Location
• Poor Demographics
• High Concentration Risk
• High Expense Ratio
• Transition Risk
• Low Enterprise Strength
• Restricted Niche

WEALTH MANAGEMENT:
Commercial Financing 101
SCOTT WETZEL, JD – MANAGING PARTNER
AARON HASLER – MANAGING PARTNER

15
Bankers and Advisors an Awkward Courtship
• 98% of advisors have never entered into a commercial loan
• Lack experience and relationships in commercial banking
• 99.8% of banks have never entered into an advisory loan
• Lack experience and knowledge of how to evaluate an advisory practice
Problem: Advisors don’t know who to reach out to and then lack
experience on how to present their application. Banks lack understanding
of how to evaluate advisory practices.
Result: Historically, minimal financing available to advisory loan market.

Increasing Bank
Curb Appeal
Deposits, Deposits, and More Deposits
• Bank’s ability to form a “relationship” with borrower
• Operating account
• Seller proceeds
• Escrow account
Equity Increases Options
• “Skin in the game” – 5% to 10%
Current Business Banking Partner
• Existing bank customers review vs. non-customers
Contractual Creativity
16

Five C’s of Credit: Wealth Management
Character Capacity Capital Collateral Conditions
Increased
transparency
as to
character –
FINRA
Ability to repay
other
obligations
Advisors nominal
commercial loans
and experience
Equity
(cash)
“Houston,
we have
a problem.”
Negative net
tangible
asset value
Term
Rates
FINRA Deposits
Seller’s
Practice
Conditions
are
flexible
Zero

WEALTH MANAGEMENT:
STRUCTURAL CONSIDERATIONS
18

Advisory Loan Financing Options & Alignment
Seller’s Note v. Bank Financing
Seller’s Note
• Seller self-finances
• 4-5 year term
• Higher monthly payments
• Buyer often in red for 4-5 years
• Buyer not enthusiastic
• Seller paid out over 4-5 years
• No seller urgency
Bank Financing
• Bank finances
• Immediate funding – 70% to 85%
• 7-10 year terms
• Lower monthly payments
• Buyer profitability accelerated
• Aligns buyer and sellers
• Seller urgency and security
19

Financing Structure Summary
Seller’s Note
•3-5 years
•Fixed rates
•No lien on residence
•Flexible conditions
SBA
•5-10 years
•Floating rates
•Lien placed on residence
•Restrictive
• No partial buyouts
• Seller must not remain
with the business
12 months post-sale
•Cumbersome
• 151 documents for close
•3 – 6 months to close
20
Conventional
•7-10 years
•Fixed rates
•No lien on residence
•Flexible
• Allows for partial buyouts
• Seller may remain with
practice in excess of one year
•Efficient
• 27 documents to close
•30 – 45 days to close

21

CASE STUDIES
Acquisition
• $12MM valuation
• External buyer
• 100% buyout
• 100% bank financed
• $10MM at close
• $2MM seller note
• Held in escrow
• Deposits
Succession
• Valuation $6.8MM
• Partial buyout
• Sole owner sold 48%
• Two junior partners
• 24% each
• $3.4MM bank financing
• Deposits
22
Refi SBA & Seller Notes
• $1.3MM SBA and seller notes
• Fix rate on SBA
• Remove residence lien
• Extend duration on seller notes
• Reduce monthly obligation
• Increase lending capacity

ADVISORY PRACTICE SALE
Transaction Tool Kit
BRAD BUEERMANN - CEO
AARON HASLER – MANAGING PARTNER

Agenda: • Steps to Closing the Acquisition
• Mechanics of the Deal
• Stock v. Asset Sale
• Tax Implications
• Requirements for Bank Financing
• Closing
Advisory Practice Mergers & Acquisitions
24SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391

Understanding the Buyer Landscape
8%
18%
74%
Average Buyer Size Compared to Acquired Practice
Smaller
Similar (+/- 10%)
Larger
Average Buyer to
Seller Ratio: 50:1

©2018FPTransitions,LLC
• What have you built?
• What is your value proposition?
• Are you a prospect or are you a
buyer?
26
HOW TO BE A SUCCESSFUL BUYER SUITOR

FOCUS ON FINDING YOUR BEST MATCH
27
LOCATION
OFFER
SIMILAR STRUCTURE
(RIA, RR, etc.)
SIMILAR
PHILOSOPHIES
SIMILAR
BD/CUSTODIAN
BUYER’S
REVENUE
FIT

Mechanics
of a Deal
External Sale
• Stock sale v. Asset (Client List)
• Consult an Accountant
• Business Attorney drafts
• Purchase agreement
• Bill of sale
• Non-compete (7 year)
• Look back provisions
• Personal guarantee
• Consulting agreement
• Bank Financing Application
• Bank Closing
Internal Sale
• Stock v. Asset
• Consult an Accountant
• Documents
• Partnership agreement
• Board of Directors
• Conflict resolution
• Buy-out
• Bank Financing
• Guarantor – Business or Buyer
28

Structuring the Deal
Seller’s Timeline
12 month Consulting
Post-Closing Referral Source?
Sell and Exit or Sell and Stay?
Average Seller Note Terms
Length: 5 Years
Interest Rate: 4%
Payment Frequency:
Quarterly
Traditional Seller Financed Deal
Bank Financed Deal

31
Merger Consulting Process
STRATEGIC ASSESSMENT
• OWNER GOALS
- Work Week Trajectory – Wealth Objectives
- Team Goals
• GROWTH GOALS
- Revenue – AUM – Clients
• ENTERPRISE REQUIREMENTS
- Professional Staff – Support Staff - Infrastructure
• ENTERPRISE OBJECTIVES
- Recruiting – Retention – Profitability
- Enterprise Value
• SOLUTIONS
- Equity Path – Enterprise Value Growth – M&A
• Entity Formation • Tax Efficiency
• Governance • Continuity
ENTERPRISE ENGINEERING
• Market • Enterprise Bonus • Profit Driven
COMPENSATION DESIGN
• Succession • Profit Sharing
• Recruitment • Retention
EQUITY PATHWAYS
• Successor • Growth • Synergy
M&A STRUCTURE
SUCCESSFUL
TRANSACTION

Critical Steps for Buyers and Sellers
Before the Deal
• Look Outside Your Immediate Circle
• Sign Mutual Non-Disclosure Agreement
Before Sharing Any Information
• Offer/Review Terms via a Compliant Letter
of Intent
• Hire an Experienced Intermediary
• Perform Thorough Due Diligence
After the Deal
• Obtain Non-Solicitation/Non-Compete
Agreement
• Sign IRS Form 8594 (Tax Treatment)
• Complete Appropriate Contract Documents
• Communicate the Transition Appropriately

NEXT STEPS:
Pre-Qualification

SEIZING THE OPPORTUNITY:
Becoming a “Serial Acquirer”
You can acquire households at $1 mil at a time,
or acquire practices at $50 mil to $500 mil at a time.
SUCCESSION LENDING CENTER| 294 Grove Lane East | Suite 120 | Wayzata, MN 55391

35
Marketing Strategy: Preparation
Advisor vs. Enterprise
Advisor
• Nominal support staff
• Lacks discernable service model
• Investment strategy “customized”
for each client
• Minimal beneficiary and multi-
generational planning
• No succession plan
Advisory Enterprise
• Robust multi-disciplined support staff
• Clearly defined service model implemented
consistently
• Investment process consistently implemented
across all households
• Beneficiary and multi-generational account
acquisition strategy implemented consistently
• Multi-generational staff with clear succession plan
RESULT: Inability to scale existing practice or
assume additional households from acquisition
RESULT: Ability to scale existing and acquired practices

Marketing Strategy: “Bring the Donuts”
Applying the Wholesale Distribution Model to Acquisitions
Ask yourself:
Who do you think is a
good wholesaler and
more importantly –
why?
• Discernable Value Proposition
• How can you address and deliver on the needs of today’s retiring advisor?
• State income tax residency considerations
• Travel
• Transaction tax planning
• Security of payment
• How can you address their interests?
• What will you do every day after you retire (retirement vision)?
• What do retiring advisors love doing? Where do they get their passion?
• What aspects of the business made them successful?
• Create a role to maximize their strengths

Marketing Strategy: Identify
Discovery Data
• Advisory Acquisition Package
• Email marketing consulting
services
Allows you to sort advisory
practices by:
• Age of the advisor
• Location
• RIA vs. IBD vs. RIA/IBD Hybrid
• Specific firms
• Asset base
• For RIAs only….
Recruiters
• Internal and external
• Your interests are very
aligned
Wholesalers
• Information? Yes. Doing the
work for you? No.
• Asking a wholesaler to
“send leads my way” will
not result in leads
• Take a wholesaler to lunch!
• Single greatest source of
information within each
territory

Marketing Strategy: Contact
Email
• Template introduction
email letter
• Monthly newsletter
with unique content
• Batches of 200-300
per email
• Track results
One-on-One
• Welcome to wholesaling
• Never eat alone –
“Can I take you to
lunch to pick your
brain?”
• Ask for their advice
• Breakfasts
Seminars – leverage
experts who also benefit
• Succession Lending: Valuation
– What is your practice worth?
• Travel company: Exotic travel
guide
• Accountant: M&A tax expert
• Estate planning attorney:
Residency reconsideration for
snowbirds

39
Summary
•Conventional bank financing alters acquisition options
resulting in changing the practice acquisition conversation.
CCH Funding Process
CULTIVATE: Prepare our network of lenders to review advisory loans
COLLABORATE: Prepare the financial advisor for bank financing
HARVEST: Competitive rates, terms, and conditions for advisors
TM

Q&A
40
(866) 567-6282
www.SuccessionLending.com

M&A and Financing Power Lunch

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