If the thought of retiring has become a constant itch that nothing but permanent time away from the office can scratch, your wish may be easier to grant than you imagined. After long years of failed expectations of merger and acquisition activity in the planning industry, factors are finally falling into place that will drive planning firm sales. That's according to Chip Roame, the managing principal of consulting and research firm Tiburon Strategic Advisors LLC in Tiburon, Calif., who told advisors at the Financial Advisor Symposium in Chicago from September 12-14 that the time is finally ripe for a vibrant advisor M&A market. Planner demographics are the main M&A drivers. "The average advisor is 60 years old and they have to do something," says Roame. That something is retirement. Forty percent of planners surveyed by Roame's company say they plan to retire in the next one to 15 years. He's predicting that half of the industry, including 70,000 independent advisors, will turn over in the next decade alone. "Aging advisors, new larger competitors including banks and CPA firms and the emergence of knowledgeable consultants and real marketplaces will drive this market," Roame told Financial Advisor Magazine. More than 300 planning shops have already changed hands in just the past three years, thanks in part to the creation of brokerage and matchmaker services such as FPtransitions, National Financial Partners, Moss Adams and iValue. FPtransitions alone has facilitated 137 sales, with NFP racking up 100 deals in the past three years. That trend will escalate as a smarter, better breed of acquirer steps up to the plate. That buyer will probably not be the financial or hybrid buyers that have gotten so much unfulfilled media hype in the past decade. In fact, the current flurry of sales activity comes after years of broken promises from these types of buyers. The landscape is littered with the missed acquisition attempts of financial buyers (also called roll-up firms) like Investment Advisor Group, Assante and Investment Managers Inc. In most cases, these firms never created a strategy that had any legitimate synergies with the planning shops they were trying to buy. Their primary interest was rolling up a number of acquisitions to create a big planning firm they could then take public or sell. No transactions ever materialized. "They didn't know a thing about the advisor business, so they never managed to do a deal," says Roame. At the same time, other would-be acquirers who have failures in their past may be getting smarter, he says. These include hybrid buyers such as Evensky, Katz & Brown, based in Coral Gables, Fla. The company failed to raise enough venture capital or acquire any firms in its recent bid to create a national planning company it could take public. But after the departure of a partner and the hiring of a high-visibility CEO, the firm says it is still looking for strategic and financial partners. It may still materialize as an acquirer, though probably one that is smaller in scale. Although both types of acquirers caught the attention of many advisors lured by visions of lucrative IPOs, neither is likely to acquire your firm. Who, then, is your most likely buyer? Other advisory firms. They account for 60% of recent sales, Roame says. Finding them can take some finesse if you go it alone. But you can get help from successful business brokers such as FPtransitions, broker-dealer matchmaking services like those offered by American Express and even value-added matchmaking programs at mutual fund companies like Alliance Capital and Putnam Investments. Roame suggests doing a cost-benefit analysis of what you'll get and what you'll give up if you hire a matchmaker. Brokerage and mutual fund companies' services may be free because they really want to retain your firm's business, but matchmakers like FPtransitions charge as much as a 10% commission. Finding a match is the foundation of a happy and lucrative deal. It's also the key to creating operating synergies, which Roame says make or break acquisitions negotiations. The same can be said for strategic or systematic buyers, which include banks and CPA firms. They have both the capital and the strategic need for the type of distribution that planning firms can provide. This type of buyer has accounted for about 15% of the 300 sales that have taken place in the past three years, FPtransition's David Goad reports. Key national, regional and community banks are quickly becoming serious buyers. Leading acquirers run the gamut from JP Morgan and Wells Fargo to Bessemer Trust and SunTrust Banks. "Every little bank in between wants to be in your business, and they've got clients. They want to give them to you to capture revenues," says Roame. "If you're thinking of selling, it can really pay to reach out to the bankers in your area." The deals can be lucrative for principals, even when the bank acquirer is fairly small. Case in point: Essex Savings Bank in Essex, Conn., acquired a 60% stake in John W. Rafal & Associates, which had $900 million in assets under management. It paid $5 million and secured the right to buy the remaining stake in the business (valued at $3.5 million at the time) before 10 years from the close of the transaction. (The valuation of the firm was calculated as follows: 1% of assets + 3x gross revenues + 7x net profits divided by 3.) Last but not least, planners are selling to partners and employees. These types of sales account for 25% of the deals recorded in the past three years. The upside, says Roame, is control. "If a planner wants to retain control, they usually try to sell to an employee." These in-house deals, however, don't always produce the best results and may not be the most lucrative. "You know that guy you've been paying peanuts for years?" Roame asked participants at the Financial Advisor Symposium. "Where's he supposed to come up with the money to buy your firm now?" While planners who want to stay in the director's seat for years to come often opt for this type of arrangement, they owe it to themselves to consider all types of buyers that may be interested in their firm. There may be deals that give them more control than they imagine, consultants like Roame say. While it can be difficult for an entrepreneur to hand over the reigns of his planning shop, the real hindrance to achieving a good sale may be their failure to plan for retirement. More than 40% of advisors report they plan to retire in the next one to 15 years. "Unfortunately, what we see happen all too often is an advisor decides they want to retire in September and expects to exit in December. That doesn't work," says Roame. Realistically, you should expect to take six months to a year to value, benchmark, dress up and strategize the sale of a practice, even if finding a buyer and effecting the sale happens quickly. Remember, you still have to ensure a smooth transition. Most smart planner-acquirers and even strategic buyers like banks and CPA firms, require planners who are selling their practice to stick around in a meaningful capacity for one to three years to ensure maximum client retention. You've spent years building your firm. Does it really serve your wallet, employees and clients to rush to the exit? "Most planners simply don't spend enough time benchmarking their practice to learn where their strengths and weaknesses are," Roame says. "There are a lot of planners out there who have higher profit margins and younger clients than the average firm, but they don't tell the buyer that, so it is never considered in the selling price." Failing to benchmark your firm means you don't have the opportunity to use your strengths to negotiate a better deal. Planners also do themselves a disservice by failing to do a valuation on their firm. Most planners can probably do one themselves, though a professional valuation costs from $2,000 to $3,500, depending on your size. SIDE BAR 1: Are You Really Prepared to Sell? Getting the best price for your firm takes a good deal of planning. An analysis of the sales of both independent planning shops and brokerage practices in the past five years reveals these proven steps for jumpstarting the sales process, says Chip Roame of Tiburon Strategic Advisors: - Identify appropriate buyers (which means weighing all options). - Develop objectives, expectations and a strategy. - Value your firm and dress it up for sale. - Position your business for sale and conduct a search for buyers. - Negotiate a transaction and secure necessary financing. - Prep for the close. SIDE BAR 2: Making M&A Work The best-conceived merger or acquisition can fail because of a strategic breakdown once the sale is inked. "The buyer ends up with a book of business that they don't know what to do with," says Tiburon's Roame. Here's a strategy for making a deal work after the ink is dry: - Prepare all staff and create one team. - Develop a comprehensive client list. - Refine the new business and operating model. - Control the rumor mill. - Create uniform product and service strategies. - Integrate all administrative and technical systems. - Develop and execute a comprehensive client communications strategy, including joint client meetings, before the sale takes place.