Executive Summary
For over a decade, the financial advice industry has been bracing for an "any-minute-now" tsunami of advisor retirements and concomitant sales of financial planning practices. Although that wave has yet to materialize (as many advisors may find that they'd prefer to stay engaged and earn well past the 'traditional' retirement age), the fact remains that, at some point, many aging advisors will have the opportunity to capture the enterprise value that they've spent their careers building. For many firm owners, an internal succession plan can be an attractive strategy to sell their practice, as it provides both continuity of service for clients and opportunities for the next generation of advisors to become firm owners themselves. However, younger advisors don't typically have the same deep pockets as large 'serial acquirer' firms, making affordability a hurdle that both buyer and seller must navigate. Which begs the question, to what extent should an advisory firm owner discount the sale price of their firm for a next-gen successor?
In our 136th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards explore the extent to which a firm owner might consider selling their practice at below-market value to an internal successor, why both buyer and seller might reconsider the valuation metrics that have been common in the industry, and ways to structure an internal succession deal that can make sense for both parties.
The primary risks when selling an advisory firm are that the deal may fall through, and existing clients may choose to leave the firm. Firm owners can maximize the value from a sale by ensuring that the buyer is a "good fit", which, if they aren't, can have real financial consequences. In the case of an internal successor, some risk is mitigated as the next-gen advisor has likely developed a relationship with clients already and is doing a good job servicing them. And maintaining pre-existing client relationships not only lowers the overall risk of the deal, it also makes the transaction a whole lot smoother. However, while that may be worth a modest discount (say, 5% or so), offering 20%–30% below fair-market value may be unrealistic. In other words, while an owner might have preferences beyond 'just' getting the highest dollar amount possible, there shouldn't be an expectation (or obligation) for the owner to offer a steep discount because the next-gen advisor can't afford it.
On the other hand, there are times when the seller's or buyer's price expectations don't align with the reality of how the firm operates. Traditionally, a standard benchmark for advisory-firm sales has been 2X annual revenue; with many firms running at an average 25%–30% profit margin, this results in 7X–8X earnings valuations. However, firms with margins outside a traditional range might result in unrealistically high earnings multiples for the buyer.
Ultimately, the key point is that advisory firm owners interested in selling their firms to next-gen advisors within their practice don't always have to structure a deal as a high-stakes, all-or-nothing transaction. Instead, the owner can facilitate a gradual sale over multiple years, allowing the buyer to adjust to the logistics of note payments and the firm's cash flows on a much more manageable scale, while the seller can continue to benefit from the ongoing growth in their firm's enterprise value. And while shifting ownership in tranches over time might not feel like the optimal deal for either seller or buyer, the end result is a deal that's fair and beneficial for both sides!
***Editor's Note: Can't get enough of Kitces & Carl? Neither can we, which is why we've released it as a podcast as well! Check it out on all the usual podcast platforms, including Apple Podcasts (iTunes), Spotify, and Stitcher.
Show Notes
- Kitces & Carl Ep 135: Do Experienced Financial Planners Have A Professional Obligation To Create Job Opportunities For The Next Generation?
- Tolerisk
- John Bowen
- How to Value, Buy, Or Sell a Financial Advisory Practice by Mark Tibergien and Owen Dahl
- Buying, Selling, and Valuing Financial Practices by David Grau
- FP Transitions
Kitces & Carl Transcript
Michael: Hello, Carl.
Carl: Michael Kitces, Michael Kitces. Let me just ask you, because we've all been wondering this whole time, where'd that little small version of Michael that's sitting on the shelf behind you, where did that guy come from?
Michael: This little guy. This little guy came from Mark Friedenthal who runs Tolerisk, so risk tolerant software.
Carl: Wow, shout out to Mark.
Michael: Yeah, so I forget the full context of it. He was doing these Lego, these mini... It's like a mini Lego figurine. He was doing these little Lego figurine giveaways for something. And I guess one of the ones that he got had black pants, a blue shirt, and a tie. And he was like, "If I just put some glasses and goatee on, it's like Michael Kitces." So if you look closely at it, he inked on a goatee. The goatee and the glasses are drawn to make it work, and then he gave it to me at an event because he was very amused as was I, so I thought that had to be a keeper. So now he just rides on the shelf there.
Carl: Wow. Thank you for clearing that up. I've been wondering for a year and a half what the heck that little thing was.
Michael: Yes, it is a little blue shirt, goatee, glasses, Lego figure.
Carl: Nice. Nice. What are we... I have questions about everything in the background, but we'll say I'll just do one a week.
Michael: Okay. That's fair.
Carl: So that was this week. So, okay. What are we talking about today?
Michael: What are we talking about today? So maybe a little bit of an extension of the last episode we did. We were talking about the dynamics of what happens as you're coming into an advisory firm. Do advisors have an obligation to create new jobs and career tracks, and can you just do a simple residency where they go in a few years, or do you always have to hire so they're going to be your future successor?
Should There Be A Discount For Internal Successions? [02:10]
So I had a question now come in from I guess basically the other end of that sequence, which is an advisor, we'll call him Jim. So Jim's question was, "I've been working at this advisory firm for a number of years. I've been interested in buying out the founder or CEO, but the price demands are too high, in my opinion. I think the industry may have some discount for internal successions."
And so, I guess as Jim put it, I'm wondering, is there a standard discount for internal successions, or just more broadly, should internal successions have a discount given the lack of affordability?
Carl: Wow. There's a lot.
Michael: There's a lot there. This is a discussion that's cropping up a lot these days as per our discussion last week, like more advisors approaching the age of retirement and looking to retire and successor out. So we hired people 5–10 years ago to be our successors. Now some of those bells are ringing. It's like, "So it's time," right? And everybody thinks, though, this is cool. We're all on track on succession until we sit down and have to set a price. And then you really find out whether a buyer and a seller can agree on a price.
Carl: Yeah, look, I think that the idea of a discount for internal succession is really interesting to me because the only way that works though...again, it's not a should, it's not an obligation. And it reminds me a little bit of, at one point, we lived in a house that we rented for 5 years. And the people who rented it to us had sold the business for a silly amount of money. We knew they were super busy. And they called and said, "Hey, this was totally out of the blue. Hey, we're getting a divorce. We need to sell the house in 60 days."
Now, I don't know that I... I felt a little bit like I should get a discount because I've paid 5 years of rent. I certainly felt that. But as soon as I came to my senses, I realized, well, I got what I paid for. I got the house to live in where I rented. So I started thinking about, well, you know what? I know this house better than anybody else. I wonder if there's an offer I could make that reflects the idea that no due diligence, no inspection, no real estate agent, quick close.
And maybe given the life circumstances, the people were...and was fair. I actually went through... I remember going through what is each one of those worth. It's pretty easy to calculate the no real estate commissions, but what is it worth that you don't have to think about paint and carpet and getting it ready to show? What is it worth that you don't have to worry about whether something comes up in the inspection? I tried to put a number on each of those and make an argument, and they bought it. Given their situation, there was a value on their end of, hey, this will happen quick. It's no fuss. We got a lot going on right now. And so that's it.
To me, that's maybe a decent metaphor for the idea of, well, maybe there's a way to structure a deal that reflects some of the value that you could negotiate with, it's not necessarily the right word, but it is the right word, because you have an understanding of the business already. Maybe the sale would be easier. Maybe somebody doesn't have to deal with due diligence and earnouts. There may be a way to structure a deal that reflects the value already built in because you're internal, but that's totally different than should and standard. How do you feel about that?
Financial Risks And Challenges A Seller Faces If A Firm Deal Doesn't Go Through [06:31]
Michael: I like that. So the primary challenge for any seller of an advisory firm is the risk that the deal doesn't go through, and/or the risk that clients don't fully follow, which has some financial consequences. Advisory firms get cut transactions with a wide range of deals from what's basically a revenue sharing earnout where everybody has skin in the game all the way through to recently like deals that are much more upfront where maybe a seller can see as much as 60%, 80% basically upfront and just the last 20%–40% that's subject to some contingency. Let's make sure a reasonable portion of the clients actually come over in the deal.
But you maximize your value as a seller when you get a good deal fit where the clients actually go. Because if the clients don't want to go and they're going to freak out and bolt, either you're not going to get the deal done or they're not going to sign the paperwork to repaper the advisory agreements, or you're going to get tagged on a contingency payment, or something else bad is going to happen.
All of which is to say, look, there is some benefit for a founder to be able to successor internally, assuming you're just otherwise like the advisor that you brought up in the firm. They know the clients, they know the service expectations, they're presumably delivering them at a reasonable level because you've kept them on board and you're having this conversation about succession with them. And that does fundamentally provide some incremental reduction to the risk of the deal, which I could argue economically probably would have some discount associated with it, but probably not at the level that Jim is envisioning.
Carl: Yeah. Separate problem is just the owner's view of value, which is a problem we should just definitely address, of course. But yeah, separate problem.
Michael: Yeah. But even when I think about what this might look like, again if some high-flying, unfortunately, PE-funded, but they have a lot of cash, if some high-flying well-funded firm is willing to give me as much as 80% upfront with no risk... And I have seen some deals cut that high. And realistically, if I put in a good effort on this transition, most clients are probably going to go if I just come to this positively and talk up the deal. To me, at least maybe I'm reading too much into it from some other conversations I've had with some other advisors, but I've heard at least other... Jim didn't give a number, but I've heard other people in Jim's position say, "Well, I would expect something like a 20%–30% discount."
I'm like, "You're not defraying the risk that much. Could I make the case for a 5% discount? Okay. Right. So saving the commission on the realtor with the private sale. We don't have to list it and I don't have to do the song and dance with a bunch of vendors, with a bunch of buyers. And I know you're a good fit and we can just get right to the paperwork. And this simplifies a little. So can I make some case for a 5% or 10% material succession?" Maybe.
But beyond that, I feel a lot of sympathy for the buyer, and I want to come back to Jim in a moment, but from the seller's end, you built this business in full enterprise value of it. You're allowed to get your enterprise value. And there are enough buyers out there. Someone will write you a pretty good check for your enterprise value without even doing your internal succession thing. They got advisors. They'll take your clients, they'll transition them to their advisors. You'll help with it because you want to get paid. And a lot of those deals happen and they go pretty okay. It's I think a version, Carl, of the story I used to tell of I stole my practice and it turned out no one cried.
Carl: Yeah. John Bowen said to me, "Your biggest disappointment in your career is going to be when you sell your business. Nobody's going to cry but you."
Firm Owners Don't Owe It To Buyers To Fit Their Risk Tolerance [11:05]
Michael: And so I do feel an inclination, much love to our next generation. Again, I want to come back to them in a moment. But I don't think any firm owner should have an obligation to sell at a below-market value to their next-generation advisor. It's a version of the discussion that we had last week. I would love to see firms create opportunities for the next generation, but I don't think they have an obligation to hire people into jobs they don't want. And I would love to see firms get transitioned to next-generation advisors, but I don't think a founder has an obligation to take a below-market rate on the sale of their firm in order to do that.
You might choose to take something slightly below market because it's a lower-risk deal, you're more confident clients will be served the way you want them to be served because you brought that advisor up to do that, and that's important to you. Not everybody's primary goal in an exit is just get the absolute biggest dollar.
Sometimes other factors like continuity for clients, continuity of service. If I sell the big guys, they're going to obliterate my firm's name out of existence. And if I successor this, my successor wants to keep our firm name and our presence in the community, which is important to me because I'm going to be retired, but I still live in this community, I just still like to have the firm out there that everybody knows in town that I made.
We have a lot of preferences beyond just price. And if you want to trade off some price preferences for some other preferences, like more power to you, make your own decision. But this implication of a firm owner should have an obligation to sell at a below-market rate because their next generation can't afford it, I don't think that's the firm owner's obligation.
Carl: Yeah. And like you said, we want to return back to the buyer in this story because deep empathy. You know what I mean? This is a really hard problem. A really hard problem.
Michael: The note I will make from the successors' end, from the next-generation advisors' end is I've had a number of advisors that have come with deals like this and even show something like here's the terms of what I'm getting. And I've looked and I'm like, "Dude, you're getting a better deal than I did when I bought my firm as a partner 15 years ago.
You actually have a good price, a really good price, but you've never founded a firm or run a P&L, and you're not so risk-inclined, which is why you took a job in someone else's firm instead of hanging a shingle like the founder person did. So I understand you have a much lower tolerance for risk. which makes this number scarier, but it's not actually that the price is not reasonable. It's that you got a risk-tolerance decision to make.
And on the one hand, I really don't think a firm owner owes it to you to discount the price to a price that fits your risk tolerance. That's really not their obligation. But maybe we can do a little conversation and education about the economics of how advisory firms actually work and why this might actually be a pretty darn good deal for you." Sorry, go ahead.
Carl: Well, I was just going to say, and what about the times we run into, which is even hard to imagine right now in this semi-frothy environment that we live in? But there are plenty of times when it actually is a bad deal, right, like where...
Michael: Oh, yes, I've seen some horrific ones.
Carl: ...yeah, the firm owner's perception of value is way off-kilter.
Michael: So let's talk about that for a moment, because really I find these are opposite sides of the same coin. So the traditional rule of thumb in our advisor world was that advisory firms sell for 2X revenue. That was the… RIAs with recurring AUM fees. That was the benchmark for the better part of 15 years.
That number has crept up recently, depending on who you talk to. It's closer to 2.5. Some people talk about 3X, although if you really start getting the deal, there's a bunch of contingencies and asterisks to that. That's not like you get that check free and clear. There's a lot loaded up on that. Your free and clear numbers tend to be a little lower. But I'll call it 2X revenue just because it makes some of the math nice, round, and easy. Maybe come back in a moment to valuations being a little bit higher lately.
So mid-size advisory firms were selling for 2X revenue for a long time. And if you look at most of the industry benchmarking studies throughout the 2000s and 2010s, advisory firms were running about 25%–30% profit margins on average, plus or minus the good year and the bad year, but we would tend to hover there.
So if my firm runs 25% –30% profit margins and I'm selling for 2X revenue, that basically means I'm selling for something right around 7–8X earnings. If I have a 25% profit margin and I multiply it by 8, I'm up to 200% of revenue, which is known as 2X revenue. All these deals really were generally selling for something around 7–8X profits.
And much smaller firms, it looks a little different when you buy a solo practice, because you have a much bigger take home with very little staff infrastructure. But once you got basically past solo practices, that was kind of the neighborhood. If it was a smaller firm and a little riskier, maybe you were in the 4–6X earnings range, instead of 7 or 8, and big firms went for a little bit more.
And because that was the math, the common way that a lot of deals got done was something on the order of 10% or 20% down and a 7-year note. If I put 10% or 20% down, what I was buying for about 8X earnings is now 7X earnings. And if I finance 7X earnings over 7 years, my profits pay my note every year. It cash flows. Now not perfectly, because, A, I may have needed to come a little bit out of pocket for the down payment, and, B, because welcome to the tax dynamics of a purchase, the profits are taxable.
Your purchase of the business is mostly principal plus a little bit of interest. Principal is not deductible when you buy the practice. So you're taking pre-tax profits, but you only get to buy with after-tax profits, which meant usually you would be a little bit more out of pocket the first year, maybe the first 2 years, and by the time you got 2 or 3 years worth of new clients and market growth, you were definitely cash flow breakeven. And then you would actually be cash flow positive in years 3, 4, 5, 6, 7. And then in the 8th year, the note gets paid off and your income goes through the roof because all of your principal payments just went away and now you're cranking.
So the traditional version of these deals self-cash flowed from profits. And the reality is for a lot of these mid-sized-ish firms of I think the size that Jim is talking about here, they're still not materially different than these numbers. Maybe now it's pushing a little more towards 8X revenue more consistently and the firm's not running at 25% margins, it's running at 30% margins, and 30% margins times 8X earnings would be 2.4X revenue. That's why that number's crept up a little bit.
But still, if you can get to a down payment and financing over 7 years, you're pretty close. Again, pull it out with your tax calculator and your marginal tax rate. You're going to be slightly underwater because the after-tax earnings don't quite cover the notes because of the tax drag, but you'll be there in a year or 2 and you keep going from there.
So the deals aren't actually that far off. And I highlight this because I saw a version of this recently where an advisor was really upset that they were going to have to pay 2X revenue. And it was for a fairly small practice. It was basically the senior advisor, the founder person, the associate advisor, who was the heir apparent, and an admin person. The practice was clearing like 60 to 70 cents on the dollar, just cash on cash.
I was like, "If you get to buy it 2X revenue, you're going to pay this off in 3 years of profits once the founder is gone and you get all the salary that he was previously paying to himself. If he'll finance this or you can just go get a bank financing note, you'll be cash flow positive the day it closes because you're paying 3X earnings financed over 7 years. This is amazingly cash flow good." And the advisor was very focused on, "Well, everybody else pays 2X, I'm an associate, I should get a discount." And it's like, "You're getting the discount. This is an amazing deal at 3X profits. And you know all the clients you've got relationship. You know they're going to stick around."
Now the flip side of this, Carl, getting your comment earlier, I knew another firm many years ago that was doing a version of this. The talking point was, "I really want to support our next-generation advisors, so we're going to take a 25% haircut and everybody got to buy in at 1.5X revenue instead of 2x." And the problem from the founder was that all of his associate advisors kept leaving and not buying in. And he'd been through 3 or 4 of them over the span of a couple of years.
Because this was a mid-size firm, there were multiple advisors. He was like, "I made the whole firm system and all the people to be successors. And none of them want to take the deal at 1.5X revenue. I'm giving them this gift and no one wants to take it," which in his context was basically a prelude to "young people these days".
And as I got into... I started asking him some questions about how the firm worked and what the numbers were. What it eventually came down to was he was a giver. So the good news of being a giver was that he was very comfortable to take a haircut on his valuation. The bad news of being a giver was he had a ginormous number of unprofitable clients that he had said yes to over the years that he shouldn't have and a whole bunch of clients that had various stories that meant they got exceptions on their fee schedule. So he was way below market rate on his fees, and the firm was barely running a 10% profit margin.
Now, it had a few million dollars of revenue so he didn't care. I forget exactly what his numbers were, but he was like, "I make 11% on $3 million of revenue. I'm making $330,000/year. It is more than enough to pay my bills and live my lifestyle and enjoy what I do. And I've got enterprise value, so it'll cover my retirement." It's like, "Why do I need to jack up my fees or kick out that low-end clients and all those things that the industry says you're supposed to do? I make hundreds of thousands of dollars and I've got a multimillion-dollar business. What's the problem?"
And the problem was, every one of his associate advisors sat down and was like, "Yeah, it sounds great that you're getting 1.5X revenue, until you do the math and you're like it's 13X profits." And no one wanted to buy at 13X profits because that would actually obliterate their personal income. Now you are horribly cash flow negative on this deal. And so even 'just' taking a 25% haircut wasn't enough because this is the grand caveat of the industry's, I was going to say fixation. That's probably too hard of a word. Our reliance on the multiple of revenue rule of thumb. Nobody buys, at the end of the day, on a multiple of revenue. You buy on cash flow and the cash flow works for the buyer and the seller. Well, mostly for the buyer.
Now, depending on the buyer and their circumstances, the multiple of revenue may get them to a number that works good enough that they don't have to get further into the details. But on the one hand, it means sometimes people are getting great deals and don't realize it. My friend was basically getting 3X revenue buy-in and didn't realize it. And the firm owner couldn't figure out why no one would buy his firm at 1.5X revenue, and the answer was because it's 13X profits and it's horribly unprofitable. And this is one of the reasons why profit margins matter.
So on the one hand, when I hear people say this in the purest sense, do I think internal succession plan should be discounted for lack of affordability? I really don't. I don't think our firm owners have an obligation to take a below-market rate. But I often see firm owners that are very disillusioned, or needs to be disillusioned, I should say, about the value of their firm because they're clinging to a multiple of revenue. That's not really a fair reflection given how not high margins they actually run.
And I've also seen people on the other end who are not as accustomed to the math finances, profitability of advisory firms, and maybe are a little bit more risk-averse because that's why they took an employee job, who don't realize that they're actually getting a pretty darn good deal on the table. And that your reluctance to do the deal is not because you're getting an unfair evaluation, it's because you're having a risk tolerance moment. Which is also a fair reason to be concerned, but firm owners not on an obligation to discount for your risk tolerance. You've got to decide whether you want to take the risk.
Carl: Yeah. Hey, rapid-fire style.
Michael: Yeah.
How Younger Advisors Who Want To Buy A Firm Can Educate Themselves [25:50]
Carl: If I'm one of these younger associate advisors that wants to buy a firm, where are the 1–3 best places? Because what strikes me here is, man, a decision like this, you should be really, really educated. If you understood all this, then the conversation is much different for you. Where are the 1– 3 places you would go to educate yourself if you're in this situation?
Michael: So the primary places... Well, so I'm a reader. I'm a book person. So my primary 2 places would be 2... there's 2 good books that I think give really good orientations around this. There are a tiny bit dated, which just means some of the multiples they might talk about maybe aren't perfect reflections of where we are now in the industry, but the underlying mechanics, the math, how all this stuff works I think is very dead on.
So the first, it's literally called "How to Value, Buy, Or Sell a Financial Advisory Practice" by Mark Tibergien and Owen Dahl. It's almost 20 years old. It's still very, very, very good. The 2nd is called "Buying, Selling, and Valuing Financial Practices," and it's by David Grau, Sr., who founded FP Transitions. I think both of those give really good educations on just the economic math and realities of how advisory firms work. Valuations have crept up slightly from where they are, although if you're not buying a multi-billion dollar firm, they're actually not that different. Most of the increases in valuation are for the really, really big firms, not the small to mid-sized ones.
And probably the biggest asterisk for those books relative to the marketplace today, even 8 years ago when David Grau was writing his book, there were almost no banks that did any financing for this. If you wanted the whole 7-year finance thing, you had to get the seller to give you a seller finance note. There are a lot of banks that do this now, specifically in the advisor space that know how to underwrite it. Some are tied to SBA, some are not.
So there's a lot of bank financing options which just make this easier. It means the seller can get their lump sum because the bank cuts the check. And the buyer can get the financing because they make the payments to the bank. Because one of the tensions historically was the sellers, I think it's a good practice, I don't really want to have to take your... I don't want my retirement to depend on your personal household financial capabilities. And so bank financing has made that a little bit easier. But those are the big 2 books that I would look at. I think they're very good for getting educated on the economics of how this stuff works.
Carl: You know what's interesting to me about this is the impact on your life that could come from reading 2 books. It's so interesting. The number of people who are willing to read those 2 books is very, very low, but the impact is huge. If you're in this... It's interesting to me how quickly you can become in the upper tier of...and I'm not talking 80%. You can be 80% educated about something pretty, pretty quick, and most of us won't do it. And so it strikes me that, man, if I was thinking about this, I would buy 2 books.
Michael: The other thing I would note around this, Grau's book, in particular, makes a particularly strong case that the way most firms, I was going to say need to do this or should do this in internal successions, in particular, is you don't make these all-or-nothing transactions where the stakes are really high and your next generation may be a little bit more risk-averse and doesn't want to take on a ginormous multi-million dollar note at once, which is what this sometimes comes out to be. You do it in slices. You do it in tranches is their label.
So let's do a transaction for 5% or 10% of the firm, and then 3 years from now, we'll do another 10% or 20% of the firm. And then 3 years after that, we'll do everything that's left. And the reasons for that are twofold. One, just we all get a little bit more comfortable with how these economics and note payments work with numbers that are a little bit lower stakes than like you've never had much more than a car loan before, and now you're supposed to take out multimillion-dollar bank notes to finance the purchase of a practice. You can ease into the comfort of borrowing and getting cash flows from it a little bit more effectively in a world where if there's a bad year, you don't blow up your personal balance sheet because you're only on the hook for a smaller percentage.
But as those deals work out, because again, as I noted earlier, the firm continues to grow through this. So you don't even have to fully pay off the notes to be cash flow positive. Usually, by a few years in with some incremental growth, you're already cash flow positive. It gets better once the note pays off. So when you do this in multiple tranches over time, what happens is the buyer who's coming in, by the time you're getting to the big purchase at the end, now they might own 20%, 30%, 40% of the firm and they have the profits and cash flows from 20%, 30%, 40% of the firm plus growth for the past couple of years. Makes it much, much easier to cash flow the remaining purchase than I've never had a loan, I just live on a salary and now I'm supposed to take this giant loan all at once to do a giant purchase. Or maybe it even requires a down payment that I don't have to down payment 10% and finance the rest.
So Grau makes a strong case around doing this in tranches. A lot of firms do valuations with FP Transitions and they have some additional detail there about how you price and do the tranches over time. But personally, I think it's an underrated strategy. The FP Transition seems to speak of it highly, just I don't see it done as much as perhaps it should or would help with this because it makes the math a little easier and more incremental. It lets the buyer build up to this over time. So it's not a giant borrowing at once.
There are some niceties for the seller who sometimes is a little worried. I don't know, I'm getting close to the point that I want to retire, but it's hard for sellers. It's like, "I keep bringing on clients, the market keeps going up. If I just hung out 2 more years, I would make a lot more money and I could sell it 2 years from now," which is one of the reasons why a lot of successors get dangled along with like, "I'm ready to retire in 3 years." 3 years later, like, "No, no, now it's really 3 years." 3 years later, like, "No, no, now it's really, really 3 years." And then successor is like, "Forget it, I'm out of here. I can't keep waiting."
It happens from the founder's end because it's really hard to not hang on for a few more years because your asset keeps growing. And this, to me, is a little bit of have your cake and eat it too. You start selling some and taking some chips off the table. You get to participate in some upside as it goes.
From the buyer's end, you get some at today's price, you get some at future price. So today's price is basically a better deal than future price with more growth. So the whole I don't want to have to make the growth and then buy my own growth in the future, well, no, you're buying some now, and then everybody shifts incrementally over time, right? So the classic deal, if everybody feels like it's not quite ideal for them, that probably means it was a fair deal for both parties.
Carl: Right. That's amazing masterclass. Thanks, Michael.
Michael: Awesome. Thank you, Carl.
Carl: Cheers. Yeah.
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