Why the M&A clock is ticking faster than ever

Why the M&A clock is ticking faster than ever
Firms interested in selling have increased dramatically, but going into the end of this year, it may be hard to find the specialized contractors needed to complete a deal, like bankers, lawyers and accountants.
AUG 17, 2021

If you’re seeking to sell or merge your advisory firm before the end of the year, the clock has begun to tick a little faster.

Our organization has completed numerous mergers and partnerships in the past few years, but we’ve recently seen the quantity of interested sellers increase dramatically, going from one or two inquiries per month to several a week.

What’s behind it?

For one, it’s a continuation of the consolidation trend that we’ve seen ramping up for years. More importantly, at least right now, the huge uptick is being driven by concern about the capital gains tax increase slated for 2022, which is drawing more sellers into the fray.

While it’s impossible to know the precise number of firms looking to make a deal because there is no national registry or multiple listing service for advisory firms, based upon our own experiences, as well as those of several industry experts I’ve spoken with, the supply of sellers may be two or three times as high as just a few months ago.  

On the plus side for advisers, the number of private equity firms interested in our space continues to increase. Some of the world’s largest firms have begun investing. Just recently, Bain Capital announced it was buying a stake in Carson Wealth.

The private markets understandably love the repeatable revenue streams of the wealth business. So the challenge is not finding a good buyer or partner for your firm, it’s getting the deal completed before year’s end.

It’s simply a matter of capacity. Firms have only so much bandwidth to complete a transaction. I know our own firm has been ramping up for the increase, but we too have our limits. While it’s true that there may be more deals completed in the second half of ’21 than ever before, there can only be so many.

That’s because with almost any merger or sale, there are numerous specialized contractors (bankers, lawyers, accountants, consultants, etc.) that need to be brought in. This past week we reached out to one of the Big Four accounting firms that we’ve worked with several times before regarding a larger transaction we are working on. We were told that they couldn’t help us because they were just too busy. Instead, we had to lean on other contacts to get one of the other major accounting firms to pitch in.

We are experiencing the same issue with other types of entities, such as technology and research firms. Everyone is buried. It’s tougher to complete due diligence when you’re having trouble getting experienced firms to assist.

An executive with a PE firm recently told me the supply-demand imbalance may cost them a couple of deals this fall.

If you are contemplating doing something before the end of the year to beat what’s expected to be a substantial capital gains tax increase, don’t wait. Otherwise, you may find yourself with a willing partner but no resources to complete a transaction before Dec. 31.

Scott Hanson is co-founder of Allworth Financial, formerly Hanson McClain Advisors, a fee-based RIA with $13 billion in AUM.

Latest News

SEC charges Chicago-based investment adviser with overbilling clients more than $2.5M in fees
SEC charges Chicago-based investment adviser with overbilling clients more than $2.5M in fees

Eliseo Prisno, a former Merrill advisor, allegedly collected unapproved fees from Filipino clients by secretly accessing their accounts at two separate brokerages.

Apella Wealth comes to Washington with Independence Wealth Advisors
Apella Wealth comes to Washington with Independence Wealth Advisors

The Harford, Connecticut-based RIA is expanding into a new market in the mid-Atlantic region while crossing another billion-dollar milestone.

Citi's Sieg sees rich clients pivoting from US to UK
Citi's Sieg sees rich clients pivoting from US to UK

The Wall Street giant's global wealth head says affluent clients are shifting away from America amid growing fallout from President Donald Trump's hardline politics.

US employment report reactions: Overall better than expected, but concerns with underlying data
US employment report reactions: Overall better than expected, but concerns with underlying data

Chief economists, advisors, and chief investment officers share their reactions to the June US employment report.

Creative Planning's Peter Mallouk slams 'offensive' congressional stock trading
Creative Planning's Peter Mallouk slams 'offensive' congressional stock trading

"This shouldn’t be hard to ban, but neither party will do it. So offensive to the people they serve," RIA titan Peter Mallouk said in a post that referenced Nancy Pelosi's reported stock gains.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.