With constant headlines about M&A activity and frequent inquiries from prospective acquirers, it’s easy for RIA owners to get the impression that an external transaction is the primary path to exit and monetize their business.

While external sales can be a viable exit option, we caution against viewing them as a substitute for a robust succession planning process.

Having a viable succession plan in place is not just a fallback option; it’s a cornerstone of a successful external sale.

Succession Planning Enhances Value

A common misconception is that succession planning only matters for firms transitioning to internal leadership or next-generation advisors.  In reality, succession planning is fundamentally about ensuring the continuity of your business, which is critical whether you plan to transition internally or prepare for an external sale.

A well-executed succession plan demonstrates to potential buyers that your firm is built to last.

External buyers are an inherently cautious group, as they’re taking on the risk of integrating a new business into their operations.

Firms without a clear succession plan may appear overly dependent on the founder or a single key advisor, raising concerns about the business’s long-term viability and lowering a buyer’s assessment of value.

Buyers are not just purchasing your current AUM and client relationships—they’re investing in the future cash flows and growth potential of your business. A well-executed succession strategy signals operational stability, client retention, a clear path for continued growth, and transferable value, all of which make the business a more attractive acquisition candidate.  For example:

• Client Continuity: Buyers prioritize firms with strong client relationships and minimal risk of attrition.  A succession plan that includes a seasoned leadership team, a clear transition strategy, and client relationships that are “owned” by the firm rather than a single advisor reassures buyers that clients will remain post-sale.
• Operational Resilience: Firms with well-executed succession plans have processes and personnel in place to ensure the business continues to run smoothly, even in the absence of the founder.  This reduces perceived risk and can justify a higher multiple in the valuation process.
• Scalability: A succession plan often involves next-generation leaders or documenting key processes, which makes the firm more scalable and attractive to buyers looking for growth opportunities.
• Key Person Risk: If the firm’s success hinges on one individual, buyers may discount the valuation to account for the risk of that person’s departure.  A succession plan that identifies and trains successors mitigates this concern.
• Cultural Fit: Strategic buyers value firms with a defined culture and leadership pipeline.  A succession plan helps ensure the firm’s values and client service philosophy endure, making it a better fit for the buyer’s organization.

Building a firm capable of an internal transition does not preclude a future external transaction or a hybrid option like a minority sale.  On the contrary, it provides you with options and leverage, regardless of your eventual exit strategy.

A well-prepared firm can choose the best path forward, whether that’s developing internal talent for a gradual buyout or presenting a highly attractive acquisition target to external buyers.

Don’t Wait Until It’s Too Late

One of the biggest mistakes RIA owners make is assuming they can “deal with succession later.”

Whether you’re planning to sell in two years or ten, building and executing a succession plan takes time.  Developing next-generation advisors, transitioning client relationships, and institutionalizing processes require years of intentional effort.

As a general guideline, succession planning should begin at least five to seven years before an anticipated exit.  This timeline allows you to build a sustainable business model that maximizes value and minimizes disruption.  Even if you ultimately sell externally, the groundwork laid through succession planning will make your firm more resilient and attractive to buyers.

Delaying succession planning in hopes that an external buyer will step in to save the day can lead to lower valuations or even failed transactions.

If you’re considering an external sale, don’t punt on succession planning. It’s not just a contingency plan—it’s a strategic tool to maximize value, mitigate risk, and ensure a smooth transition for your clients and team.

About Mercer Capital

Mercer Capital is a valuation firm organized according to industry specialization. Our Investment Management Team provides valuation, transaction, litigation, and consulting services to asset managers, wealth managers, independent trust companies, broker-dealers, PE firms, and alternative managers.