You have completed most of your due diligence. I say most, because as you will see, there is still more to do. You have modelled a couple of ways to buy the Seller’s book or firm that would work for you. You have even visited with lenders to determine in principle, if the models you have developed can be completed. You are ready to make the Seller an offer. The proper way to do this is in the writing of a Letter of Intent, (LOI), to buy. The elements of the LOI include:

· Exactly what you are buying, (the RIA, the LLC, just the assets and clients, insurance, furniture, etc.)

· The price you propose to pay, including the down payment

· The structure; how you plan to buy the firm or book. (An earn-out, an installment sale, a cash payment, etc.).

· Plans for the owner, (work for a specific period of time, until the client assets move, or some other period). This is the Management Agreement.

· Any other agreements, (non-compete, non-solicitation)

· Timing for the Close

· If you plan to keep any of the employees.

· A time limit on the offer.

Each of the bullets above represents a provision in the LOI. You want to be as clear as possible and try not to go into too much detail. Remember, there will be a Definitive Agreement, which will be signed at the Closing. This Agreement is very detailed and should be written by an attorney. We will discuss this in a future article. We tend to call the LOI a “wish list.” You write what you want to do, and give the Seller a chance to come back with his or her own “wish list.” Better still, you or your representative have spent the necessary time to determine the Seller’s desires. Then when you sit down to present the LOI, (please, do not ever mail or email an LOI!!), you can truthfully say that you have addressed all of the Seller’s desires. Notice, I did not say the Seller gets everything that he or she wants; I simply said that you indicate that you have addressed them. We try to make everyone happy so that the Transition will go well, but you have to stick to what works for you. This is why we suggest more than one model.

The LOI does not typically bind anyone to buy or sell; it simply expresses their intent. You generally want it said that this is “subject to completing the due diligence.” This could be said of both Buyer and Seller. The more time you have spent with the Seller, the better the chances that you will get a positive response to the LOI. In truth, if you do not feel you can compose a LOI that will please the Seller, do not waste your time, or the Seller’s, writing one. As will be addressed in our next article, the time period between the LOI and the Close, is the most critical period in the process. I will give one piece of advice; once you have presented the LOI, consider the text function on your cell phone turned off when it comes to communicating with the Seller. The reason should be obvious, but tune in next week.

This series of articles attempts to help First-Time Buyers avoid pitfalls inherent in the process of advisory firm acquisition. Watch for new articles each week.

Casey M Corrie, President

Moisson Partners, Inc.

Mergers. Acquisitions, Consulting, for the Advisory Community