M&A transactions involving registered investment advisors (RIAs) has increased tremendously in the past five years. For sellers, these transactions allow the founders and other owners to monetize the value of their ownership stake and also potentially join another firm to supercharge the growth of their practice. For sellers, it’s an opportunity to add clients, talent, and potential service offerings to promote growth of their RIA firms. Nonetheless, the process of RIA M&A transactions can be complex, and therefore, it behooves buyers and sellers to familiarize themselves with the steps involved in the event they are interested in exploring such transactions. In this article, we provide a high-level overview of the various stages of an RIA merger, sale, or acquisition transaction and detail key considerations for buyers and sellers during each stage including a discussion of the key legal documents that are typically prepared and negotiated in connection with such transactions. For a discussion of how to navigate the sale of a minority interest in an RIA, click here.

First, assuming there is interest between a buyer and seller in a transaction after preliminary discussions, the parties would then typically enter into a mutual non-disclosure agreement (NDA) to allow for more in-depth discussions and due diligence by both parties to ensure that there is a good fit for a potential transaction. The NDA is crucial for protecting the interests and proprietary information of both entities involved in the negotiation because both sides will be sharing sensitive information. Typically, the NDA will restrict the parties from using or disclosing confidential information shared by the other party for a purpose other than in connection with exploring the potential sale, merger, or acquisition. Important things to negotiate in an NDA include what is included within the scope of “confidential information” protected from use and disclosure; the length of the restrictions on the use and disclosure of confidential information; and what the parties must do with the disclosing party’s confidential information after termination of the NDA. It’s worth noting that even if the parties have signed an NDA, the seller may not be permitted to share certain information about its clients, depending on what is contained in the seller’s privacy policy.

After the NDA is signed, the parties can then share much more in-depth information about their firms including, among other things, information about the RIA’s finances, operations, compliance program and history, employees, clients, and material business arrangements. The buyer and seller must conduct extensive due diligence to better understand the risks and opportunities associated with a potential transaction with the other party.

Next, sometimes, if the parties feel comfortable enough that they have preliminarily agreed upon terms for the transaction, including the valuation of the target firm, they will enter into a letter of intent (LOI), term sheet, or memorandum of understanding that outlines the tentative terms of the transaction. For an article discussing how RIA firms are commonly valued for merger or sale transactions, click here. In many instances, the parties will enter into the LOI even before they engage in extensive due diligence. Depending on whether the transaction is an asset sale, equity sale, or merger transaction, the LOI will typically include details of key terms such as the structure of the transaction, the agreed-upon purchase price and payment schedule, any purchase price adjustments or earn-outs, contingencies for closing of the transaction, anticipated timeline for signing key documents and closing of the transaction, restrictions on non-competition or non-solicitation applicable to the seller, and, if applicable, key terms of the employment of the seller’s personnel following the transaction. While typically these terms are not binding on the parties, the LOI typically includes several terms that are binding including a so-called “no-shop” provision, which typically restricts the seller from exploring transactions with parties other than the buyer in question for a period of time. The “no-shop” provision is important to the buyer because, otherwise, the buyer may not have the incentive to expend the significant amount of time and resources required to conduct more fulsome due diligence on the seller’s business. Nonetheless, the LOI affords the parties the opportunity to walk away from the transaction if they do not wish to move forward for one reason or another after the expiration of the “no-shop” term.

If the parties agree that the transaction should move forward after conducting due diligence, the parties will then have counsel prepare the transaction documents for the deal. With respect to asset sales, typically this will be an asset purchase agreement. With an equity purchase, the transaction document will typically be a membership interest purchase agreement or stock purchase agreement for the buyout of the equity of the RIA. In addition to spelling out the key terms of the transactions, the primary transaction document will also include numerous representations and warranties to be made by the seller with respect to its business which are designed to assure the buyer that the seller has operated its business in compliance with all applicable laws, rules, and regulations, among other things. The buyer and seller also agree to indemnify one another from certain “bad acts” should something go awry after the closing of the transaction. Other transaction documents could include, as appropriate, an escrow agreement (if certain amounts are held in escrow pending future events), a promissory note (if a portion of the purchase price will be funded through a loan from the seller), a bill of sale (to evidence the sale of assets or firm equity), an assignment and assumption agreement (where the buyer assumes certain contractual obligations from the seller), an employment agreement (if the seller’s personnel will join the buyer’s firm as an employee after the transaction); a joinder agreement (if the seller will be acquiring equity in the buyer’s firm as a result of the transaction), and certain closing certificates and attestations from both parties. Upon signing of the transaction documents, the parties may then publicly announce the transaction and notify clients of the transaction.

However, even if the transaction documents are signed, the parties may have to fulfill certain obligations prior to the closing of the transaction. Most notably for RIAs registered with the SEC and certain states, this entails arranging for the assignment of the investment advisory contracts of its clients. For reference, Section 205(a) of the Investment Advisers Act of 1940 requires registered RIAs to include a contractual provision in their investment advisory agreements prohibiting the RIA from assigning the client’s investment advisory agreement without the client’s consent. Depending on whether the seller must obtain affirmative consent (i.e., written consent) or negative consent (i.e., the failure to object to the assignment), the process can take a different amount of time. For a discussion of the most common mistakes we see in RIA investment advisory agreements and why they can be costly for RIAs, please click here.

Once the investment advisory agreements and other closing logistics, if any, have been accomplished, the parties can move to close the transaction which typically entails funding of any upfront purchase price amount from the buyer to the seller and the signing of various documents by the parties, which could include employment agreements, promissory notes, joinder agreements, and other transaction documents.

Even if the transaction is closed, however, there is still much work to be done by both buyer and seller. For buyers, the work of integrating the seller’s firm and personnel begins, and often this can be a lengthy process due to a variety of factors including operational and other issues that must be addressed. For sellers, depending on the circumstances, appropriate regulatory filings may need to be made to reflect the transaction. For instance, if the Seller will effectively cease conducting advisory business through its firm following the transaction, the seller will typically need to arrange for the filing of a Form ADV-W to withdraw its investment adviser registration. The seller, however, may also need to arrange for the retention of its books and records for a period of time after the closing of the transaction. The seller may also, depending on the circumstances, need to make certain corporate filings or file tax documents as a result of the transaction.

As you can see, RIA mergers and acquisitions are complex transactions that require attention to a significant amount of detail, and therefore, buyers and sellers should retain an attorney as soon as practicable to assist them in the event they are interested in exploring the potential sale, acquisition, or merger of their RIA firms.

In summary, the process of selling or merging an RIA requires careful thought and consideration and involves numerous steps and documents. Nonetheless, RIAs that are armed with information on how to navigate such transactions can prepare effectively in order to achieve their goals. For an article on how to best prepare to sell an RIA, click here.


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