Questions Your Attorney Should Ask Any RIA Buyer
Price is the term everyone reads. These are the ones that decide what your life looks like in year three, and what your rollover equity is actually worth.
Give this list to your attorney before the first draft arrives. Every question below has cost some founder real money.
On the capital structure. What entity is buying, and who owns it? Is there a fund with a stated life anywhere in the chain, and if so, when does it end? What debt sits above my rollover equity, and what happens to my equity if a covenant is breached? Who has the right to force a sale of the operating firm, and under what conditions?
On governance. Which decisions require my consent after closing, in writing? Who sets fee schedules, who approves hires, and who can change the firm name? If the answer is that these are handled collaboratively, ask for the clause that says so, because collaboration is not a governance term.
On my equity. Is my rollover equity the same class the sponsor holds, or is it junior? What information rights come with it, and how often do I receive financials? How is it valued if I want out, who does the valuing, and can they mark it down before repurchasing it? What happens to it in a change of control, an IPO, or a recapitalization?
On the earnout, if there is one. What exactly is measured, who controls the levers that move it, and what happens if the market falls twenty percent? Is it payable if I am terminated without cause? An earnout that depends on decisions the buyer now makes is not a payment, it is a hope.
On my people. Are existing compensation arrangements assumed at closing, and for how long? Who has authority to reassign client relationships? Are there severance protections for the staff, and do employment agreements contain non-solicits that would trap someone in a job they no longer want?
On me. Scope, geography, and duration of the non-compete, and what specifically triggers it. What is the definition of cause, and can it be invoked to void deferred payments? What are my obligations if I want to stop working in year two rather than year five?
On their history. Names and contact information for three founders who sold to them, at least two years ago. Any regulatory actions, and any deals that were re-traded after the LOI. A buyer who declines to provide references has given you an answer.
One process note worth more than any single clause: negotiate governance and equity terms during exclusivity, not after. Once diligence has consumed three months of your time, your leverage to fix a bad clause is mostly gone.