The thought of such a deal peaked the interest of Kabarec and his wife and business partner, Karen, in expanding their business, while being able to cash out part of their equity. Uninterested in the first suitors who came calling, Kabarec turned to the local office of his broker-dealer Charles Schwab, which introduced the advisor to money management firm and buyer Optimum Financial Advisors of Chicago. The synergies were enticing on paper.
By acquiring half of a planning firm in the form of preferred stock, Optimum would be able to refer all interested money management clients for planning, thereby creating additional cash flows and the type of relationships that comprehensive financial planning can produce.
In return for the cash flow from 50% of Kabarec's clients, Optimum agreed to pay Kabarec a purchase price and ongoing payments on notes. "We were throwing them cash flow, and they were throwing us cash right back to pay notes," Kabarec says.
While the relationship was amicable from start to finish, the market downturn and Optimum's culture sidetracked the desired cross-pollination of money management clients. They were referring few clients for planning, so in essence they were paying for a planning firm they weren't using or growing.
In 2002, both parties decided to undo the deal. "We bought our stock back at a deep discount," Kabarec says. "It was a highly lucrative deal for us." The planning clients had always remained with Kabarec Financial Advisors, so there was little or no disruption.
Crucial to the unwinding of the deal was the contract, which stipulated that if Optimum defaulted on its notes Kabarec would get to keep its preferred stock, which it held as collateral. The trial acquisition run, says Kabarec, gave them the incentive to begin structuring their firm as a turnkey operation that they can gracefully exit as part of an even more profitable sale in three or four years. "Almost all of our new clients are assigned to another professional in our office who will go on to the new firm," says Kabarec.
They've also designed a successful marketing program-the first, Kabarec admits, since he founded the firm 22 years ago-and hope to grow revenues and the ultimate payout to more than $2 million for he and his wife. "We've been approached by several reputable firms, but we're just not ready yet," Kabarec says.