The Wire

After the year we’ve had so far, not many of us would say no to some more stability in our lives. That counts double for the RIA industry. A graying workforce weighs its options for exit plans, and the pressure to compete makes inorganic growth an attractive prospect. After spending hours combing through the terms of dozens of M&A transactions for our annual RIA Deal Room Report, I realized buyers and sellers last year showed a greater hunger than ever for the perceived safety of cash deals.

From 2015 to 2018, cash made up 47% of the average acquisition. Last year, it leaped to 70%, and we expect cash will play a significant role in deals to come. The flight to certainty is real, but is it the whole story? And what does it mean for the future of M&A in our industry? 

THE INDEPENDENT ADVISORY FIRM’S SUCCESSION PROCESS was working out great: A next-generation advisor had become the majority shareholder and titular head of the company as planned. There was just one problem—the founder continued working at the firm, actively making decisions, offering guidance when approached by staffers, and, in the process, undermining the new owner.

With the COVID-19 crisis—or any crisis we run into—we tend to look back at the business and financial decisions we’ve made to see how they are helping or hurting us. In this episode, John Furey, Managing Partner of Advisor Growth Strategies, joins Tony to discuss how you can put plans in place to help your business grow and thrive through challenging times.

John has successfully guided many wealth management businesses through both good and bad times, so listen in as he shares effective ways to plan and prosper. You'll learn how any business can leverage what they have available and make it through this time in an impactful way.

The COVID-19 fallout is infecting the RIA M&A market --  like it's 2015 all over again--with whittled cash and more IOUs at closing.

Buyer's are less indulgent because of the freshened fear of pandemic uncertainty. Only a year ago, they flashed cash in a way that let seller's -- more than ever before --  take the money and run, according to John Furey, managing partner of Advisor Growth Strategies.

Despite the ongoing COVID-19 pandemic, many merger and acquisition opportunities in the RIA sector continue to emerge, according to several consultants and executives.

“Acquisition brands” — advisory firms that have done multiple transactions recently and have made M&A a key part of their growth objectives —  are the ones to watch.

These firms “set the pace again in 2019” for M&A activity, said Brandon Kawal, principal of Advisor Growth Strategies, during a recent webcast.

Last year, Goldman Sachs dropped a cool $750 million in cash for United Capital, the RIA founded by Joe Duran 15 years earlier. This deal represented further proof the M&A market has been heating up, to say the least. A recent report from RIA consultancy Advisor Growth Strategies showed a 29% year-over-year increase in the EBITDA multiple paid for advisory firms last year. More specifically, the multiple jumped from a median of 5.1x (in 2015-2018) to 6.6x last year.

The global coronavirus pandemic has slightly slowed the pace of dealmaking in recent months, per this Fidelity report, but experts remain optimistic about valuations and dealmaking, particularly since so many buyers have a good bit of cash on hand. The pandemic is also accelerating succession plans because it’s increased the amount of uncertainty in the market.