In our second book, Buying, Selling, and Valuing Financial Practices (the M&A Guide), we introduced the term of a “predatory buyer” to our readers. If you are thinking about selling your practice one day, you need to understand how certain buyers will approach you, how to protect yourself, and what, or who, to watch out for. In this article, we will answer these important questions for potential sellers:
- What exactly is a predatory buyer?
- Where do I look to find a qualified and capable buyer, AND realize the full value of what I’ve built?
- What is the difference between selling value and realized value?
Predatory buyers don’t actually announce themselves. Still, there are telltale signs and, unfortunately, it’s often the outcome of negotiations that signals it was a “predatory” deal. In this case, the term applies to a group of well-funded and capable acquirers who buy everything and anything within a single independent broker-dealer (IBD) or custodian but do so with complete disregard for market value or professional deal terms. Such buyers typically acquire smaller books at the rate of one or two per year. These buyers are skilled at getting what they want. Indicators include proposing pure split revenue buyout offers, using rules of thumb based on multiples of revenue or earnings, discouraging a valuation of the practice (“it’s really just not necessary”), and creating deal terms that create a “heads I win, tails you lose” sale.