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Presentation Charles Schwab Powered By Docstoc
					        Advantage 2005




     Transition Planning:
     How do I get to the 19th hole?

                        David DeVoe
                        Director, Practice Management Programs
                        Schwab Institutional

Schwab Institutional is a division of Charles Schwab & Co., Inc. (“Schwab”) Member SIPC (0904-01594)   1
         Agenda
         • Transition Trends in the Industry
         • Lifecycle of a Transaction
         • Discussion Items
                 –     Planning and Objectives
                 –     Finding the Right Partner
                 –     Deal Structure
                 –     Integration
         Q&A

The information provided in this presentation is for general informational purposes and not intended to provide specific financial, accounting, tax, legal
or regulatory advice. Schwab makes no representations as to the accuracy or appropriateness of the information for any given situation. You should
seek the assistance of professional advisors, such as attorneys and financial advisors, in determining how to structure your transition plan.




                                                                                                                                                        2
Demographics of Principals
  Nearly 50% of financial service firm principals are over 50 years of
  age – a full 15% are over 60 years old.


                          Age Distribution of Schwab Institutional Advisors

       25%
                                                   20%
       20%                                17%               17%
                                                                     14%
       15%                                                                    12%
                                  11%
       10%
                         5%
        5%      2%                                                                    3%

        0%
             Under 30   30-34     35-39   40-44    45-49    50-54    55-59    60-70   70+
                                                   Age




Source: Business Strategy Group 2002                                                        3
Financial Service Firms: Succession Plans
 Although advisory firm principals aging, few have begun to plan
 their succession.


       Most advisors recognize the need                                    . . . but few have made
               for planning . . .                                             planning a priority.

                 Urgency Around                                                Advisors With
               Succession Planning                                            Succession Plans
    100                                                              100

      80                                                              80

      60                  74%                                         60

      40                                                              40

      20                                                              20

       0                                                               0
                                                                                    20%

Source: September/October 2003 Schwab Institutional Advisor Survey
                                                                                                     4
Key Drivers of Consolidation

 Structural changes to the industry are driving
 consolidation
    – Demographics of principals
    – Margin compression
      • Rising employee costs
      • Increased compliance costs
      • Rising technology costs




                                                  5
Transition Planning Options



                           Transition
                            Planning


   Succession              Mergers &                 Partner
    Planning              Acquisitions               Addition
 (internal transition)   (external transition)   (organic transition)




                                                                        6
Life Cycle of a Transaction




   Planning and   Prospecting      Structuring   Post-Merger
   Fundamentals   for Candidates   the Deal      Integration




                                                               7
Life Cycle of a Transaction




    Planning and      Prospecting      Structuring   Post-Merger
    Fundamentals      for Candidates   the Deal      Integration



                 The            The             The
Objectives:
              Right Plan    Right Match      Right Deal




                                                                   8
The Right Plan

   Planning and   Prospecting      Structuring   Post-Merger
   Fundamentals   for Candidates   the Deal      Integration




   • Learn the fundamentals of M&A
   • Assess your firm’s capacity for M&A
   • Determine and refine your M&A objectives
   • Develop a plan


                                                               9
Key Business Strategy Considerations
 Service Model Characteristics
 • Service Offer
 • Products and Services
 • Expertise (Internal or Service)
 • Investment Philosophy

 Business / Marketing Characteristics
 • Client Base
 • Geography

 Management Characteristics
 • Staff Bandwidth
 • Culture


                                        10
Transition Objectives and Parameters
  Buyer Objectives
  • Increasing scale, revenues, profits
  • Adding new products or services
  • Adding new expertise
  • Changing the service model
  • Expanding geographically
  • Leveraging / acquiring bandwidth
  • Finding a successor
  Seller Objectives
  • Exit the business/Retirement
  • Merge to share operational resources
  • Join a larger firm; gain more resources

                                              11
How do You Define Success?

 • Value and liquidity
 • Continued role / control
 • Business legacy
 • Transitioned clients
 • Developing / taking care of loyal staff




                                             12
The Right Match

   Planning and   Prospecting      Structuring   Post-Merger
   Fundamentals   for Candidates   the Deal      Integration




     • Create a candidate profile
     • Develop a prospecting plan
     • Implement plan and be prepared to move
       opportunistically



                                                               13
M&A Candidate Profile
 Service Model Characteristics
 • Service Offer
 • Products and Services
 • Expertise (Internal or Service)
 • Investment Philosophy

 Business / Marketing Characteristics
 • Client Base
 • Geography

 Management Characteristics
 • Staff Bandwidth
 • Culture


                                        14
Prospecting Resources

 • Online listing services (e.g. www.SchwabTransition.com)
 • Colleagues and associates
 • CPA, lawyers, vendor representatives




               Balance of Access
               and Confidentiality


                                                             15
The Right Deal

   Planning and   Prospecting      Structuring   Post-Merger
   Fundamentals   for Candidates   the Deal      Integration




     • Negotiations
     • Deal structure
     • Valuation




                                                               16
Determining Value




                      Cash Flow
        Value =
                    (Risk – Growth)




                                      17
What Enhances Value?

 Economics              Client Base
 • Firm size            • Client profile
 • Profitability        • Client satisfaction
 • Cost structure       • Depth of relationships
 • Income mix
 • Growth trajectory

 Business Operations    External Forces
 • Management team      • Market forces
 • Business structure   • Buyer’s objectives
   and processes
 • Reputation / brand
   equity

                                                   18
Optimizing Value



                             Cash Flow
      Value =
                     (Risk      – Growth )




  Balanced by your personal definition of success


                                                    19
Determining Cash Flow
                                Value =   Cash Flow
                                          (Risk – Growth)




                Revenues
      Cash
      Flow =   - Direct Expense
               = Gross Profit
               - Overhead
               = Operating Profit


                                                            20
Transaction Considerations

 • Price
 • Deal Structure
    – Payment Terms
    – Taxes
    – Timing
    – Risk
    – Financing
    – Obligations
    – Legal, Regulatory and Due Diligence



                                            21
The Right Plan

   Planning and   Prospecting      Structuring   Post-Merger
   Fundamentals   for Candidates   the Deal      Integration




     • Staff communication
     • Client communication
     • Migration of accounts




                                                               22
Q&A




      23
For More Information:


 www.schwabtransition.com
    – Resource Section has information and white papers on
      key M&A topics
    – Referral Section has contact information of leading
      experts in various fields (e.g. legal, investment banking,
      valuation)




                                                                   24

				
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