Since Mid-Market Securities does not conduct any retail stock brokerage business or hold customer accounts (cash or securities), we offer a complementary investment banking service to the practice of independent and affiliated Registered Representatives and Registered Investment Advisors, in which those advisors may offer investment banking services to their clients through Mid-Market Securities on a referral basis.  Since both entities would be securities-licensed members of FINRA, we are able to pay referral fees to advisors.

The services we offer and work process has been established for years with a large network of nearly 900 Registered Representatives operating out of close to 400 offices.  Upon referral, advisors may remain as involved or as distant from the transaction process as they choose.

To many business owners, the line between their personal/family and business lives is very thin, if not altogether transparent.

 

• If you want to build long term AUM, serve business owner clients.  Most of those with the greatest investable assets are business owners, and entrepreneurial activity is principally the driver of wealth creation.
• You’ll have to wait until they have a business liquidity event or spend several years successfully building the business to substantially boost your AUM though, as many business owners’ wealth initially is tied up in those companies
• 70% to 80% of a business owner’s assets are tied up in their business for its first 10 years [this estimate is entirely consistent with others that I’ve seen for years]
• The payoff typically comes when the owner experiences a liquidity event, such as a full or partial sale of the business, or takes the business public.  At that point, advisors’ AUM is poised to skyrocket.
• According to John Bowen, CEO and founder of CEG Worldwide, publisher of the linked report, “This report demonstrates that entrepreneurs are the next generation of the ultra-high-net-worth community, a fact that is greatly changing the way that financial advisors serve their affluent, super affluent and ultra-affluent clients. Entrepreneurs have different needs, personalities and desires from their Baby Boomer counterparts. We are seeing a shift in the advisor community toward adopting a client-centric model that goes beyond just offering traditional investment management services, and more toward providing a complete wealth management experience.”

Few Business Owners Do Formal Exit Planning

While many owners will hire financial advisors to manage their personal wealth aside from the business, it is surprising how few hire investment bankers to help them manage the value of and plan strategic options for the asset that comprises perhaps 70-80% of their net worth.

The oldest Baby Boomers reached 65 in 2011 and 60,000 are reaching 65 daily.  The last Boomers turn 50 this year, in 2014.  The expected transfer of business owners’ wealth over the next several years will be enormous, and some people forecast that there will be such a plethora of businesses for sale, that it will depress valuations.  That is certainly not the case yet, as valuations right now are rather lofty.

Most business owners know very little about the valuation enhancement and transfer options available to them.  For instance, it is a common misconception among owners that the only way to achieve any liquidity is by outright sale, or for a very few, a public offering of stock.  In fact, we are approached constantly by acquirers and investors seeking to buy or invest in mid-sized companies, across a number of industries.  Some seek to buy outright, some only a portion, and many prefer that the existing management remain in place, offering substantial incentives for shared future growth.  There are choices.

There are many ways in which Mid-Market Securities helps companies and shareholders achieve their goals, and I would be happy to discuss options.  We provide growth and/or transition solutions to private and public, U.S. and foreign companies which seek to build shareholder wealth and/or liquidity.  Depending upon goals and circumstance, we advise on and manage transactions, such as complete or partial sale of the business, merger, acquisitions, raising growth capital, restructuring, international expansion, ownership transition planning (immediate or over time), family succession, and/or management buy-out or buy-in. 

McGavock Dickinson (Dick) Bransford is a Managing Director in San Francisco with Mid-Market Securities, LLC, an investment bank headquartered at 11 East 44th Street, 19th Floor, New York, New York 10017.  Member FINRA/SIPC.

He can be contacted at (415) 294-0002 or mdb @ mid-marketsecurities.com.

Disclaimer: This article provides general information, and is not intended to constitute, and should not be construed as, legal, tax, accounting or business advice, nor does it constitute an offer to sell or to purchase securities. Rather, it is summary compilation of timely issues confronting your industry and as such does not purport to be a full recitation of the matters presented.  Prior to acting upon any information set forth in this article or related to this article, you should consult independent counsel and/or more detail contained in the Source Information. The article reflects the opinion of the writer, and does not necessarily reflect the opinions of Mid-Market Securities, LLC, or its affiliates.  IRS Circular 230 Disclosure: In order to comply with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax discussion contained in this communication is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.