Part 2 of a 2 part series
Four key strategic initiatives for independent firm principals to consider when creating a roadmap to enhance enterprise value
We often hear principals of independent firms speak of their desire to increase assets under management, and how they feel that doing so will help ensure their relevancy and solidify their position in the marketplace. While this singular notion may have been a focus in years past, increased competition has caused a shift in goals for many quality firms, a shift towards increasing overall enterprise value by paying attention to the things that most impact it (as discussed in my last post).
By benchmarking how your firm stacks up against its peers, internal business plans and personal goals, you can begin to map out tactical and strategic initiatives to reveal the delta between where you are now and where you want to be. If you find that “what got us here, won’t necessarily get us there”, then there are four avenues to consider.
Recognize that each strategic option has its pros and cons, requiring a degree of sacrifice and flexibility. Be sure your vision and business plan are clear before you take on any new initiatives, lest you find that the cons take the lead.
- Consider strategic capital partners
Explore a relationship with a strategic capital partner, which would mean selling a portion of cash flow or leveraging bank financing. This will allow you to recapitalize the business and gain a source of capital to complete acquisitions. Be ready, however, for a potential pitfall: While this will help monetize the business, it may not necessarily be enough to give you the firepower you need if a state of the art infrastructure, unique value proposition, and succession strategy is not already in place.
- Scan the universe for acquisitions…and become an acquirer
If a firm has the capital, is deal savvy, and has a unique value proposition, then finding a likeminded seller that could provide scale, capacity and bench strength because of the theory of 1+1 =3, can be an ideal solution. The problem is that many other firms are attempting to do the same, so count on intense competition with no guarantee that a transaction will be completed in a reasonable period of time.
- Consider a merger of equals
For many, merging organizations with similar culture, values and size may feel more natural. While all parties would likely preserve their voices and identities, often commingling two “imperfect” organizations – ones that have not alone solved for the four drivers of growth – will not move the needle enough. You may end up with an organization that has gained size but not scale – and more of the same problems that you had before.
- Acquisition by a larger firm…and become a seller
Over the last few years, most of the highly touted and successful M&A transactions have occurred when a scaled business has acquired a smaller counterpart. Finding a partner that meshes culturally and from an investment perspective is a tall order but a strategy that can make great sense when executed properly. The combined entity will likely solve for the four drivers of growth – gaining scale, a comprehensive infrastructure, succession plan, the ability to service clients better, and, as a result, become a more valuable enterprise. For a seller, ceding control, however, may not be an easy pill to swallow, so the folks who do it, do so only after careful deliberation and having felt enough pain as a standalone. If you are able to solve for all of the things that could drag enterprise value down by remaining independent, then that is likely the ideal course of action.
If the recent M&A boom has proven anything, it’s that there is no shortage of quality buyers or investors in the space—and they are looking for quality firms with vision, growth potential and profitability. The question remains: how important is it to you to solve for missing pieces and what are you willing to give up in order to do so?
