The Wire

RIA M&A has been a well-publicized topic in the industry.  There was a record level of RIA M&A in 2018, and so far in 2019 there are no signs that deal pace is slowing down.  Against this backdrop, a new study conducted by Advisor Growth Strategies (AGS) and sponsored by BlackRock sheds light on the realities facing RIA buyers and sellers.  Based on transaction information for over 50 RIA deals, the study examines the relationship between deal price and deal terms.  The full study is available here.

The study categorizes RIA deals based on purpose (short-term or long-term), size (small target or large target), and payment structure (certain or uncertain).  The synthesis of these factors impacts the transaction multiple, as shown in the chart from the study below.

The heads of two of the largest companies in the RIA industry are arguing that access to capital has become table stakes as the industry matures and as buyers and sellers alike wisen up to other factors involved in making good deals.

That's not to say anyone's turning off the money faucet anytime soon.

M&A is all the rage these days — several specialists pointing out this year has had more than 100 deals in the financial advisory field to date. But what are some of the trends inside this development? A new study by Advisor Growth Strategies and sponsored by BlackRock found some interesting new demands on buyers and new realities for sellers.

Succession planning is a major concern for aging advisors.

The Financial Services industry is old, with the average age of a financial advisor hovering above 50 (there are twice as many CERTIFIED FINANCIAL PLANNERS™ (CFP®) over 70 than under 30). Moreso, books of business of primarily older clients don't fetch as much in the market (due to the younger generation's desire to become independent from their parents' advisors). Exiting via selling your business to a larger firm is no longer a viable strategy.

Not all advisor dealmaking is created equal.

According to a new report from RIA consultancy Advisor Growth Strategies, bigger RIAs are more likely to use equity when merging than their smaller counterparts.

Advisor Growth Strategies found that from 2015-2018, the total consideration in the average $1 billion AUM-plus RIA deal consisted of around 47% equity. In contrast, the average sub-$200 million AUM deal consisted of just 38% equity.

Regardless of size or intention, every RIA is merely a Schrödinger cat. 

Somewhere ahead of them is a fork in the road and, based on the circumstances at that moment in time, it could become a buyer or a seller. It will either live or die. 

Erwin Schrödinger, the Austrian physicist who won the Nobel Prize in Physics in 1933, created the paradox that has been repeatedly referenced in pop culture. Schrödinger’s thought experiment centered on a hypothetical cat in a box that is simultaneously alive and dead, indefinitely. But if someone opens the box, they would either find a dead cat or a live one.