WOLF & CO Case Studies Structuring an Advisor Buyout of Seed Investors

Structuring an Advisor Buyout of Seed Investors


Entrepreneurial enthusiasm and strong investment performance helped an investment advisory business grow from an idea to a firm that was fast approaching $1 billion in assets under management. Like many in their position, the initial seed investors were pleased with the employee/minority owner investment managers of the entity they funded, but felt the time had come to cash out on their investment and let the managers and their staff enjoy the full benefits of business ownership.


The valuation of the business grew exponentially as the Firm’s revenue grew, while the cost of support systems remained relatively fixed. The business could easily generate the cash needed to fund the buy-out over time. However, a leveraged buy-out would create negative net worth during the first few years of the buy-out. The challenge was to structure the buy-out to avoid the advisor falling short of the Qualified Pension Asset Manager (QPAM) net worth requirements.

Wolf & Company designed a scenario where the members contributed their ownership interests to a new entity. The buy-out was recorded at this parent organization level and the operating assets, without the buy-out debt, of the advisor were dropped into a subsidiary.


The result was an operating subsidiary that had both positive equity and the demonstrated ability to fund the parent’s buy-out of the seed investors. This structure cleverly solved the QPAM issue.