M&A vs Selling to Another Advisor: What's the difference?
When it comes to exit strategies for financial advisors, there are several options to consider. Two of the most common are a merger and acquisition (M&A) deal and selling your business to another professional. While these may seem similar on the surface, there are some key differences that can significantly impact your decision-making process.
First, let's define each option:
A merger and acquisition (M&A) deal is a combination of two businesses where one company is absorbed into the other. In this scenario, the company being acquired becomes a subsidiary of the acquiring company, and the two companies operate as a single entity. M&A deals can be completed through various methods, such as a stock purchase, an asset purchase, or a combination of both.
Selling your business to another professional, on the other hand, involves transferring ownership of the business to someone else. This could be a friend, family member, employee, or an external buyer. When you sell your business, you are relinquishing all control and ownership of the company, and the new owner takes over all aspects of the business.
Now, let's delve into some of the key differences between these two options:
- Control:
One of the biggest differences between a M&A deal and selling your
business is the level of control you have over the company. In a M&A
deal, you may still have some control over the business as it becomes a
subsidiary of the acquiring company. However, in a sale, you are
relinquishing all control of the company to the new owner.
- Structure:
M&A deals tend to be more complex in terms of structure and
negotiation. There are typically multiple parties involved, including
lawyers, accountants, and other advisors, and the process can take several
months to complete. In contrast, selling your business to another
professional is typically a simpler process, with fewer parties involved
and a shorter timeline.
- Financing:
Financing is another key difference between M&A deals and selling your
business. In a M&A deal, the acquiring company usually provides the
financing for the acquisition. In a sale, the buyer is typically
responsible for financing the purchase, whether through a loan, cash, or
some other form of financing.
- Tax
implications: The tax implications of M&A deals and selling your
business can also vary significantly. In a M&A deal, the tax
consequences will depend on the specific terms of the deal and the type of
entity being acquired. In a sale, the tax implications will depend on the
sale price and the tax basis of the assets being sold. It's important to
consult with a tax professional to understand the tax implications of each
option.
- Value:
Finally, M&A deals and selling your business can also differ in terms
of value. M&A deals can often result in a higher valuation for the
company being acquired, as the acquiring company is typically willing to
pay a premium for the business. However, the valuation of the business in
a sale will depend on the negotiation between the buyer and seller.
In conclusion, M&A deals and selling your business are
two different exit strategies that can be considered by financial advisors.
While there are some similarities, there are also significant differences in
terms of control, structure, financing, tax implications, and value. It's
important to carefully consider these differences and consult with advisors
before making a decision on which option is best for your business.