Price Becoming Less Important in M&A Market, Says IFA

In the world of mergers and acquisitions (M&A), the headline price of advisory practices is gradually losing its significance. According to Forte Asset Solutions principal Steve Prendeville, there has been a noticeable shift towards prioritizing cultural fit in M&A transactions.

While price remains a crucial factor in M&A deals, Prendeville highlights the growing importance of cultural alignment during the acquisition process. In a recent episode of the ifa Show podcast, he emphasized that the headline price, although essential, rarely determines the success of a deal. He explained that even if the financial numbers look promising on paper, a lack of alignment between the buyer and seller can lead to the rapid unraveling of a deal.

One of the key reasons cultural fit has become paramount in the advice profession is the significance of interpersonal relationships. Non-alignment between the buyer and seller can prove to be a costly mistake for businesses, particularly in terms of client retention. Prendeville warns that if advisers do not feel aligned with the acquiring group in terms of values, client philosophy, or advisory approaches, retention becomes a significant issue, regardless of the amount paid for the acquisition. He added that when there is a misalignment in culture, advisers may leave, clients may disengage, and the expected earnings from the acquisition may start to diminish.

With this in mind, Prendeville argues that paying a higher multiple for the right business can sometimes be less risky than opting for a lower price for a business that lacks cultural compatibility. Ultimately, the performance of advisory businesses hinges on their staff and their ability to provide quality advice. Thus, any M&A transaction should be viewed as an investment in people rather than just a brand.

Buyers in the M&A market are increasingly underwriting not just the revenue of a business but also the people, their behaviors, and the operational dynamics of the business. Prendeville stresses that the best buyers take the time to understand how a business functions on a daily basis and how decisions are made, in addition to scrutinizing the financials. This holistic approach to evaluating an acquisition targets the heart of the business – its people and operations.

In conclusion, as the M&A landscape continues to evolve, the importance of cultural fit in deals is becoming more pronounced. While price remains a crucial consideration, buyers and sellers alike are recognizing the significance of alignment in values, philosophy, and operations. A successful M&A transaction goes beyond the numbers, focusing on the people, behaviors, and day-to-day functioning of the business to ensure long-term success and sustainability.