For this week’s post we’re introducing our whitepaper on quality of earnings analysis in the investment management industry.  For RIA buyers and sellers, commissioning a QofE report is an essential element of the due diligence process.  In essence, a well-executed QofE analysis not only reveals why a firm is profitable but also assesses the likelihood of maintaining and enhancing that profitability after the transaction.  This comprehensive approach ensures that both buyers and sellers make well-informed, strategic decisions in the RIA industry.

Before parties to an RIA transaction can close, they must first agree on a price.  Narrowing that bid/ask spread is tricky, which is often why negotiations between prospective buyers and sellers fail.  Buyers and sellers naturally have different perspectives that lead to different opinions on value:  Where a seller sees a strong management team, a buyer sees key person risk. Unsurprisingly, these different perspectives on the same firm lead to varying opinions on value, and the gap can be substantial.  Bridging that gap is key to getting a deal done.  We address five ways buyers and sellers can bridge a valuation gap.