Jump to content
Sign in to follow this  
Guest ICannotDiscloseMyIdentity

Small TPA purchasing another smaller TPA

Recommended Posts

Guest ICannotDiscloseMyIdentity

We are discussing the possibility of buying another TPA firm (owners looking to retire), but we have never done this before. We are looking at two TPA firms, each is about 1/4 our current size (we are a TPA firm). When all is done, if these both work out, we would have about 1200 small plans. We have retained competent legal counsel to help us along the way. However, we would like to hear from anyone else out there about good ideas that worked well, or ideas that turned out bad that we should avoid.

Thank you.

Share this post


Link to post
Share on other sites
We are discussing the possibility of buying another TPA firm (owners looking to retire), but we have never done this before. We are looking at two TPA firms, each is about 1/4 our current size (we are a TPA firm). When all is done, if these both work out, we would have about 1200 small plans. We have retained competent legal counsel to help us along the way. However, we would like to hear from anyone else out there about good ideas that worked well, or ideas that turned out bad that we should avoid.

Thank you.

I have been through two sales. What type of information are you asking for? I assume that legal issues are covered, since you mentioned "competent legal counsel." There is much that can be considered, so can you be a little more specific? For example, are you talking about evaluation, administrative issues, how to structure the financial deal, etc. Thanks. Lee

Share this post


Link to post
Share on other sites

Couple of quick thoughts,

Method - straight purchase or earn out? I'd go with an earn out that way the current owners have an incentive to work for a smooth transition.

Quality of receivables - age of receivables and likelihood of actually collecting is far more important that their appearance on the balance sheet.

Letters of intent - are minimums to qualify for no load purchases unsatisfied? How long does the grace period run and how likely is it that you will meet the minimums?

Share this post


Link to post
Share on other sites

Have you checked the staff competence levels? Are you sure they did satisfactory quality work? Will you assume liability for past errors?

Share this post


Link to post
Share on other sites
Guest ICannotDiscloseMyIdentity

For the first one, the structure of the financial deal will include cash and a portion of earn out, but we had a lot of discussion about the pros and cons of this and we're not sure if this is how we want to structure the other TPA purchase.

We are getting close to the point where we can go in and actually look under the hood - financial books, administration, compliance, etc. We can walk away if it looks bad. We have looked at the quality of the staffing, although we have not done any informal "interviewing" to confirm. For one of the TPAs, we are discussing the possibility of taking on their past (stock purchase). But for the other, we will definitely not do that, theirs will be an asset purchase.

So, we have some idea of what to look for, but with no past experience, what kind of things should we be especially looking out for?

Demosthenes, you mentioned to look at the quality of receivables - thanks, we'll be sure to look at that. I'm not sure what is meant by minimums for no-load purchases.

Share this post


Link to post
Share on other sites

When checking quality of their work you will need for them to disclose how many clients have been audited, what is the turnover rate for clients, get client references since you are buying the book of business.

If the majority of the client base is small, do a complete review of some risky clients. Make sure the TPA isn't bending the rules to keep the client happy.

Share this post


Link to post
Share on other sites

Assuming they do the plan document work too, you should verify that the required interim amendments have been done timely, including sending any SMMs. Check the GUST document signature dates to make sure they were adopted timely.

Your counsel hopefully has advised you to have the seller sign a non-compete.

Share this post


Link to post
Share on other sites

I have seen TPA's sign Letters of intent with Mutual Fund Companies whereby the Mutual Fund Company waives loads if the TPA places X$ in the fund in Y time, usually $1.0m in one year. It can be part of a sub accounting agreement with the fund company or a separate letter agreement.

The problem is that if the TPA doesn't hit the minimum deposit level, the loads are applied retroactively. Not a pretty sight

Share this post


Link to post
Share on other sites
We are discussing the possibility of buying another TPA firm (owners looking to retire), but we have never done this before. We are looking at two TPA firms, each is about 1/4 our current size (we are a TPA firm). When all is done, if these both work out, we would have about 1200 small plans. We have retained competent legal counsel to help us along the way. However, we would like to hear from anyone else out there about good ideas that worked well, or ideas that turned out bad that we should avoid.

Thank you.

Any suggestions on were to look for TPA firms for sale? If you know of any TPA firms for sale, can you please suggest them to us.

We are currently looking to expand our operation thru acquistion. Any help, ideas or suggestions you can provide will greatly be appreciated.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

×
×
  • Create New...