Client consent and the assignment problem
Under the Investment Advisers Act, advisory contracts generally cannot be assigned without the client's consent, and a change of control of the adviser can count as an assignment. For registered funds, the advisory agreement terminates automatically on assignment, so a new agreement usually needs approval from the fund's board and its shareholders. Private fund documents add their own consent and key-person provisions, and limited partners may have rights triggered by a change of control. How consent is obtained, including whether negative consent is acceptable for a given client base, is both a negotiation point and a regulatory one. These steps drive the timeline of asset management mergers and acquisitions more than almost anything else.
Valuing a business whose assets can walk
Asset managers are usually valued on revenue tied to assets under management, and those assets belong to clients who can leave. That is why many deals use earnouts, deferred payments, or rollover equity linked to revenue retention after closing, and why key portfolio managers are often asked to sign employment and restrictive covenant agreements. Diligence focuses on regulatory history, including examination findings, Form ADV disclosures, marketing practices, fee calculations, and custody arrangements. Problems such as overbilling or undisclosed conflicts can become the buyer's issue if the entity itself is acquired. Representations, indemnities, and sometimes holdbacks address what diligence finds.
Planning the sequence
We usually begin with structure, whether an asset sale, an equity sale, a minority stake, or a combination of firms, because it controls which consents are needed and from whom. State notice filings, Form ADV amendments, and any broker-dealer or insurance affiliates add their own steps. Communications to clients about the deal have to be accurate and consistent with the disclosure documents, since the anti-fraud rules apply to them. Employees, including advisers who might consider leaving with clients, need a plan as well. A first meeting usually sets the structure, the consent strategy, and a realistic closing timeline.
