Gold rushes are attractive to speculators looking to get rich quick. They’re also dangerous to those who rush in too quickly without planning ahead and consulting the appropriate experts. That’s the risk for young advisors who believe the industry is rife with easy M&A opportunities.

Last year, an increase in smaller transactions dropped the average size RIA merger and acquisition deal to $881 million from more than $1 billion in 2016. Even so, the number of deals set another record last year, and the first quarter of 2018 had 42 percent more deals than the fourth quarter of 2017. So it’s true that a good M&A deal benefits both parties. The caveat is to pay close attention to details, lest you wind up paying dearly in financial and opportunity costs.

One especially tricky area has been carve-out deals, which have exploded in popularity over the past few years. Participating in the partial divestiture of a business unit of a larger company to outside investors, typically through the sale of equity stakes, demands both a deep knowledge of the RIA space and the unique dynamics that go into putting together M&A deals.

Outside of the advisory space, across the broader sweep of corporate history, carve outs have long been rife with complexity. The RJR Nabisco conglomerate went through a notorious leveraged buyout in 1988 that almost immediately turned chaotic. In 2003, Citigroup conducted a risky deal for the credit card business of the faltering Sears, Roebuck & Co. Both instances produced many unanticipated problems down the line.

Young advisors exploring any M&A deal—but particularly carve-outs—should seek a community experience that combines the best elements of structured thought leadership, business coaching and practice management. Mastering the independent M&A landscape requires combining those elements with a digital approach to interactive learning, peer group networking and shared knowledge.

This is the case for both buyers and sellers. But before jumping into M&A in general, it’s worth asking yourself a few tough questions.

Payment

One of the most important items to start with is how to structure payment—cash, equity, or some combination?

As a seller, receiving a full upfront cash payment may free you immediately to fund your future plans, but it could bring onerous tax consequences. But as a buyer, paying all cash might be the least favorable method, unless you have lots to spare or have negotiated a low valuation.

All equity deals, or stock-for-stock mergers, may not work for either party. Equity stakes change in value over time, come with lockup periods and present issues with ongoing control of the merged entity.

Ultimately, many deals feature a combination of cash and equity stakes, with the proper proportions depending on the plans of each party as well as other factors detailed below.

Valuation

How is your practice being valued, who sets the valuation, is there a competing offer and what is the industry average valuation for comparable practices?

Total AUM, revenue, number of clients, revenue per client, profit margin, annual growth rate, compliance track record and staff loyalty are crucial components for many valuations. But, for example, if your practice has a strong growing niche, total AUM and number of clients may be less important than annual growth rate. Or that could just be how you see it. If the other party deems profit margin and compliance track record as the deciding factors, the valuation process could get tense.

If the seller is in discussions with another buyer, or the buyer is in discussions with another seller, that party has more room to negotiate valuation than if no competing offer exists. And the closer the valuation is to an industry average, both parties are likely to have greater comfort.

Fit

Perhaps one of the most important but complex considerations is whether the M&A partnership is a good fit, for you and your practice. Sellers may become blinded by the payment windfall, while buyers may overlook a seller’s quirks in the quest for growth.

A successful merger is based on mutual respect for the culture and personalities each party brings to the partnership. Often the nature of the parties plays a big role. Private equity shops may be less collaborative than pure RIAs, hybrid RIA broker-dealers may be more compliance focused than other buyers, and pure RIAs may be dependent on a single individual for direction.

Far too many deals seemed great on paper only to collapse under the strain of daily work life.

Truly getting to know the other party, their work culture and what makes them tick, from the executive level down to essential staffers—before finalizing the merger—is the best way to determine if the fit is right.

Alex Chalekian is the CEO of Lake Avenue Financial, a wealth management firm based in Pasadena, California.