While both methods have their merits, the choice between them can significantly influence the success of a transaction. An EBIT-based approach is frequently used for its alignment with profitability. In financial services, this can be particularly relevant for businesses focused on maintaining high margins or navigating cost-intensive regulatory frameworks. However, EBIT introduces complexities because it factors in cost structures that are often outside the seller’s control post-acquisition. Adjustments to staffing, compliance costs, or operational efficiency can all impact EBIT, making it a less predictable metric for sellers.

On the other hand, a revenue-based methodology offers simplicity and transparency. Revenue reflects the business’s top-line performance, focusing on its ability to generate income from assets under management, recurring fees, or client advisory services—key metrics in financial services. This approach avoids complications arising from cost adjustments and operational changes, which makes it especially appealing to sellers seeking clarity and predictability in their deferred payments. In our experience brokering financial services transactions, most deals lean towards revenue performance metrics for these reasons, though every transaction is unique.

Choosing the Right Metric for Success in Financial Services

The decision between EBIT and revenue should not be made lightly, particularly in financial services, where business models and client portfolios vary widely. For example, buyers aiming to ensure long-term profitability and compliance may prefer EBIT, as it ties payments to tangible financial outcomes. Conversely, sellers often favor revenue metrics, especially when transitioning high-value client books or recurring revenue streams, as these metrics are less impacted by changes outside their control.

At Growth Focus, we have seen how these metrics shape deal dynamics in the financial services industry. For instance, when acquiring a financial planning practice with a growing client base, revenue metrics often highlight market opportunity and scalability. Alternatively, in well-established firms with consistent cash flow and cost control, EBIT-based structures can provide more robust assurances for buyers. Aligning the performance metric with the business model and the objectives of both parties is essential for a successful transaction.

Tailoring for Fairness and Alignment

Our extensive experience in brokering financial services transactions has shown us that no single method is universally superior. Instead, the optimal structure depends on the specific attributes of the business and the strategic priorities of the buyer and seller. By carefully analyzing the unique aspects of each transaction—from regulatory considerations to revenue diversification—we help craft agreements that ensure alignment, fairness, and transparency.

This underscores why Growth Focus emphasizes the importance of tailoring deal structures to suit the unique circumstances of each transaction. Whether the focus is on revenue or EBIT, the ultimate goal is to facilitate a seamless transaction that meets the needs of all parties and lays a solid foundation for future success.