Is Poor Compliance Stopping Your Firm From Receiving A Good Valuation?

The value of a robust compliance program cannot be overstated, especially when it comes time to sell (or buy) a firm. For RIA and broker-dealer firm owners eyeing a sale, ensuring regulatory compliance isn't just about ticking boxes—it's about maximizing evaluation and facilitating a smooth transition. Similarly, prospective buyers must scrutinize potential targets' compliance frameworks to mitigate risks and ensure a seamless integration process.

From the seller's perspective, having a comprehensive compliance program signals readiness for acquisition. It demonstrates a commitment to regulatory adherence, mitigating potential liabilities, and streamlining operations. Sellers aiming to attract top buyers recognize that compliance is not just a legal requirement but a strategic asset that enhances valuation.

For buyers, assessing a target firm's compliance program is critical for several reasons. Firstly, it provides insight into the target's risk profile and potential regulatory liabilities, allowing buyers to make informed decisions. Secondly, a strong compliance framework aligns with buyers' objectives of acquiring top advisor talent, expanding into new markets, and increasing assets under management.

However, the M&A landscape is complex, with divergent priorities between buyers and sellers. Sellers may focus on optimizing evaluation through measures like consolidating custodians, while buyers prioritize due diligence to ensure a smooth transition post-acquisition.

To bridge this gap, buyers must recognize the importance of thorough due diligence beyond financials. Compliance procedures, legal documentation, succession plans, and team onboarding processes are equally crucial aspects that contribute to a successful acquisition. Inadequate attention to these areas can result in post-acquisition challenges, leaving both parties dissatisfied with the outcome.

The role of compliance and outsourced general counsel becomes paramount in navigating the M&A process effectively. These professionals help sellers enhance their compliance programs to maximize valuation and support buyers in conducting comprehensive due diligence. By addressing compliance and legal considerations proactively, firms can position themselves as attractive targets or buyers in the competitive M&A landscape.

The success of M&A transactions in the RIA and broker-dealer space hinges on the strength of compliance programs. Sellers seeking to maximize valuation and buyers aiming for seamless integration must prioritize regulatory compliance and legal due diligence. As the adage goes, the best time to act is now. By investing in compliance and legal support, firms can pave the way for successful M&A transactions and future growth opportunities.