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M&A and Financing Webinar 12/06/18
The document discusses the challenges and opportunities in succession lending for financial advisors, highlighting that 100,000 advisors are set to retire by 2025 while 90% of independent advisors never retire. It emphasizes the importance of bank financing over seller notes and SBA loans, presenting a more efficient and flexible approach for buyers and sellers in advisory practices. The document outlines structural considerations, common deal structures, and various case studies demonstrating successful financing strategies.
M&A and Financing Webinar 12/06/18
- 1. PRESENTED BY: 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
- 2. ? ? ? Supplyand 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 90% of independent advisors never retire 50 buyers for every advisory practice seller
- 3. SUCCESSION LENDING CENTER| 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 3 Who is Succession Lending? Conventional 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.
- 4. Crafting the Conversation:Buyers and Sellers • Today’s Buyers: Approaching sellers with seller’s note: • What sellers hear: “I do all the work and take all the risk.” • Re-Crafting Buyer Messaging: 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.” 4SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391
- 6. Structural Considerations -SBA vs. Conventional SBA • Variable Rates • Lien against personal property • Restrictive • No partial buyouts • No partnerships • Seller must not remain with the business 12 months post-sale • Cumbersome • 151 documents for close • 3 – 6 months to close • Why? $ Conventional • Fixed rates • No liens on personal property • 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 SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 6
- 7. Common deal structurewith 100% bank financing require 20% - 30% of proceeds held in escrow subject to client conversion hurdles for seller. SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 7
- 8. Succession Lending’s Standard LoanStructure* ORIGINATION FEE (can be financed into loan amount) 2% YEAR TERM 5-10 FIXED 7% YEAR AMORTIZATION 5-10 * The above constitutes a proposal and is not a commitment to le nd. The fee, rate, terms, and conditions are for informational purposes only and will require formal credit underwriting and approval. Mitigating Factors • Loan Amount • Character (credit) • Cash Flow • Loan devalue Our Fee Succession Lending’s Standard Loan Structure*
- 9. SUCCESSION LENDING CENTER| 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 9 Complementary Disciplines Comprehensive Services • Enterprise Engineering • Business Valuations • Succession Planning & Equity Pathways • Mergers & Acquisition Strategy • Compensation Structure • Contract Design & Drafting • Corporate Consulting • Ongoing Strategic Support FP Transitions delivers an Integrated consulting Model STRATEGY ANALYTICS LEGAL VALUATION © 2018 FP Transitions, LLC
- 10. SUCCESSION LENDING CENTER| 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 10 Commercial Loans EMS Program • Coupon Code: LEND CTS Program • Finance with Succession Lending • 2% of Transaction • 94% success rate Comprehensive Services
- 11. SUCCESSION LENDING CENTER| 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 WEALTH MANAGEMENT: Commercial Financing 101 SCOTT WETZEL, JD – MANAGING PARTNER AARON HASLER – MANAGING PARTNER
- 12. SUCCESSION LENDING CENTER| 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 12 Bankers and Advisors an Awkward Courtship • 98% of advisors have never entered into a commercial loan • Lack experience and relationships in commercial banking • 95% 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
- 13. Five C’s ofCredit: Wealth Management SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 13 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
- 14. SUCCESSION LENDING CENTER| 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 14 WEALTH MANAGEMENT: STRUCTURAL CONSIDERATIONS
- 15. Advisory Loan FinancingOptions & 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 • 7-10 year terms • Lower monthly payments • Buyer in the black Day 1 • Buyer incentivized • Immediate funding • Seller urgency and security • Aligns buyer and sellers SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 15
- 16. Financing Structure Summary Seller’sNote • 4-5 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 SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 16 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
- 17. Tax Considerations Seller • CapitalGains • Costs Basis • Asset Sale • Consulting Agreement Taxation • Non-compete • Stock Sale • Cost Basis Buyer • Interest deduction • Debt service ratio • Regular income credits 17SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391
- 18. SUCCESSION LENDING CENTER| 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 18
- 19. CASE STUDIES –Funded Loans 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 SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 19 Refi SBA & Seller • $1.3MM SBA and seller notes • Fix rate on SBA • Remove residence lien • Extend duration on seller • Reduce monthly obligation • Increase lending capacity
- 20. CASE STUDIES Acquisition • $12MMvaluation • External buyer • 100% buyout • 100% bank financed • $10MM at close • $2MM seller note • Held in escrow • Deposits Bank Financing: Beat Private Equity roll-ups Interest rates 7.25% Business growth 15% Banks Like: Escrow Account Business Deposits / Checking Buyer’s Personal deposits SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 20
- 21. CASE STUDIES Succession • Valuation$6.8MM • Partial buyout • Sole owner sold 48% • Two junior partners • 24% each • $3.4MM bank financing • Deposits Biggest Educational opportunity for Wholesalers No discount to Total firm value Seller remains active Co-guarantor Seller’s deposits – held at Lending bank Reward and retain Junior/Generational Partners Exclusive Opportunity to Succession Lending (Impossible with SBA) SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 21
- 22. Steps to Ensurea Successful Acquisition 22SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 Top Tier Practice Value
- 23. Summary • Bank Financingis the game changer the industry needs to increase the number of transactions. • Be patient with the Seller and Buyer. It is an emotional conversation. • Prepare • Our Team 23SUCCESSION LENDING CENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391
- 24. Next Steps: Pre-Qualification SUCCESSION LENDINGCENTER | 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 24
- 25. SUCCESSION LENDING CENTER| 294 Grove Lane East | Suite 120 | Wayzata, MN 55391 25 (866) 567-6282 www.SuccessionLending.com Q&A