The Anatomy Of A Virtual M&A Deal

By Andrew Rosen

Communication and interpersonal relationships are at the heart of any successful merger and acquisition process. Given the current constraints of COVID-19, face-to-face meetings are logistically impossible, and the market is increasingly unpredictable. So how do registered investment advisors learn to navigate the current virtual M&A market? We're going to look at the anatomy of a virtual deal and the challenges this new format presents.

The Process Of The Deal

For an M&A to be successful, both constituent companies must be compatible. It's similar to a first date; both companies are looking for the perfect match. It is critical to use clear communication to understand the goals, needs, and culture of the company you intend to acquire.

Before you initiate the merger process, consider the seller’s wishes. As you consider the culture fit, you must then ensure that you know the seller’s financials and business model inside and out. This knowledge and feeling of mutual understanding will equip you as you begin the process of negotiating terms and determining financing for the deal.

The Challenges Of Working Remotely

COVID-19 has thrown a wrench into the works. In days past, premerger planning consisted of a series of face-to-face meetings, which allowed the buyer and seller to build a relationship before heading into legal and financial considerations. But remote RIAs don't have the luxury of in-person meetings. Adapting to a work-from-home model is not an easy position to be in, and it lends itself to a whole new set of challenges. At the top of that list? Building rapport.

It can be difficult to communicate your company's values properly in a virtual setting. Zoom, Google Meet and other video conferencing solutions have allowed businesses to continue working effectively, but when it comes to conveying emotion and building trust, they don’t measure up to in-person contact.

Team building also suffers under the WFH model. The process involves a host of professionals, from RIAs to accountants to attorneys, all working in concert with one another. By its very nature, remote work fosters isolation rather than team work.

There are logistical implications to remote work as well. Because face-to-face interactions are still so limited, many processes that previously required in-person signatures, fact finding or document review are no longer possible. Additionally, the company's value might be directly impacted by COVID itself. RIA firms will have to adapt their methodology if they intend to continue driving record business in 2021.

Overcoming Remote Challenges

The COVID-19 pandemic has persisted longer than many expected, but there's a silver lining for the M&A sector. After some initial problems when COVID-19 first hit, mergers and acquisitions have surged. The market still performed at record pace for the 7th year in a row. ECHELON Partners reported at least 205 M&A deals this past year, versus 203 in 2019. In the fourth quarter of 2020, there were more than $1.3 trillion in completed deals. Businesses have found ways to persist.

Many have argued the answer to these challenges is digital infrastructure. PWC recently found that digital implementation is a key factor especially in the M&A market. In fact, 53% of business leaders intend to invest more heavily in technology and modernization to help meet the next crisis head on. But digital infrastructure isn't a panacea or cure-all. There is something to be said for going back to the basic. Take the recent merger between Diversified Lifelong Advisors and RZ Wealth as the perfect case in point.

Diversified Lifelong Advisors and RZ Wealth: A Case Study In Remote M&A

During the deal making process, Diversified Lifelong Advisors exercised flexibility in order to start things off on the right foot. It was important to us that RZ Wealth felt excited about the merger, but moreover, that they felt heard, and their company's needs were met. We put in the work to make sure that happened. It wasn't a matter of reinventing the wheel, but rather increasing the frequency and quality of communication, even in a digital format. Video conferences occurred on an almost daily basis as we built solid rapport —overcoming the limitations of the remote format.

These frequent video conferences in conjunction with implementing an open-door policy aided in facilitating meaningful and direct communication with RZ Wealth. RZ was free to ask questions and raise concerns, because at its heart, a merger is more than just expanding your assets; it's about the people that make up the business.

Finally, Diversified Lifelong never lost sight of our sense of strategic timing despite remote constraints. We leveraged our patience and sense of pace to help keep the deal on track despite the new challenges that we faced.

Ultimately, the successful partnership between Diversified Lifelong Advisors and RZ Wealth is emblematic of the M&A sector as a whole. Despite some initial disruption at the pandemic's outset, the industry has persisted and seen record growth due to the adoption of technology, and moreover, understanding that the industry's foundations remain unchanged despite adversity.

Andrew Rosen, CFP, CEP, is the president and partner at Diversified Lifelong Advisors, a financial planning and investment advisory serving executives, professionals and retirees in Delaware and Pennsylvania. He may be contacted at andrew.rosen@innfeedback.com.