Welcome back to the 395th episode of the Financial Advisor Success Podcast!
My guest on today’s podcast is Dustin Mangone. Dustin is the Director of Investment Advisor Services of PPC LOAN, a firm based in The Woodlands, Texas that facilitates conventional bank loans to financial advisors.
What’s unique about Dustin, though, is how his firm allows financial advisors to tap into bank lending, an historically challenging source of debt capital for the advisory industry, to finance both RIA and independent broker-dealer transactions from internal succession plans to acquisitions and other growth initiatives.
In this episode, we talk in-depth about how Dustin’s firm works with partner banks to offer loans to financial advisors buying into (or all of) an advisory firm, enabling selling firm owners to receive most or nearly all of the purchase price up front without the need and awkwardness of relying on a seller-financed note that’s just paid back to the original owner with the profits they were already getting in the first place, how the repayment success for bank lending to financial advisors has led to increasingly larger loan amounts available, sometimes up to 100% of the acquired firm’s purchase price (depending in part on the financial strength of the acquiring firm), and the key financial metrics Dustin’s firm ultimately uses to determine the amount it is willing to lend for M&A deals, including the buyer’s capitalization, the selling firm’s recurring revenue, and the ratio of the firm’s cash profits to its anticipated debt payments after the deal closes.
We also talk about how Dustin’s company facilitates internal advisory firm successions, including both partial buy-ins and complete purchases, how the metrics Dustin’s firm uses changes when considering loans to internal buyers and how firms can structure sequential transactions in tranches to build the borrowing capacity of the next generation advisors to buy out the rest of the firm over time, and why Dustin recommends that potential successors assess their financing options early on in order to be able to set realistic expectations with the seller regarding the buyer’s financial capacity before the 2 sides negotiate the terms of the deal.
And be certain to listen to the end, where Dustin discusses current trends in advisory firm valuations, with firms frequently seeing multiples of 2.5–3X recurring revenues (although ultimately the valuation, like the debt financing capacity, is really based on a multiple of profits not revenue), how Dustin sees conventional bank loan offerings differing from the Small Business Administration loans that historically were available to advisors, and how Dustin continues to see robust deal financing opportunities for external firm purchases and internal successions, even in the current elevated interest rate environment, because of how fundamentally sound advisory firm businesses really are because of their long-term relationships with clients.
So, whether you’re interested in learning about the dynamics of the bank lending market for financial advisory firms, how potential internal and external advisory firm buyers are evaluated by lenders and what this means for the proceeds received by selling firm owners, and how internal successors can best plan to buy into their firm, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Dustin Mangone.
