Why the M&A clock is ticking faster than ever

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.

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