Adviser M&A activity suggests sellers firmly at the helm

SEP 29, 2014
Practice values continue to increase for advisers, but that doesn't mean the market for advisory firms has peaked, said Brad Bueermann, chief executive of FP Transitions, at the Financial Planning Association annual conference in Seattle on Sunday. "Don't listen to the noise that now is the time to sell," he said. "We have a steady and mature market." Multiples for what a buyer is willing to pay for a practice have grown almost every year, with last year landing at about 2.36 times revenue, said Mr. Bueermann, whose firm has completed nearly 6,000 market valuations in its 15 years. A new study backs up the fact that it's definitely a robust market for sellers. About 28% of advisers said they have sought to buy a firm in the past two years, compared with 4% who have tried to sell, according to the 2014 InvestmentNews Financial Performance Study of Advisory Firms. Looking forward, the market may be even more lopsided. About 33% of firms said they anticipate buying a firm in the next two years, while 5% said they planned to sell, the study found. The merger-and-acquisition market for advisory firms also has been impacted in the last two to three years by the emergence of banks financing deals, Mr. Bueermann said. That's allowed a lot more young buyers to come in because the payback can be stretched for 10 years, he said. Obviously most sellers haven't wanted to wait a decade to get paid, but young professionals didn't have the access to capital they do now. About 29% of advisers who transferred ownership in the past year did so through a transaction that was bank financed, the 2014 InvestmentNews performance study found. FP Transitions estimates about a quarter of the deals it facilitates are financed by banks, and Mr. Bueermann said he expect that will rise to at least 33% of deals within a few years. Banc of California, which sponsored the session at the FPA conference, and Live Oak Bank are two of the biggest banks financing adviser M&A deals, he said. Bank financing has helped a lot with succession planning. FP Transitions is on track to complete 250 succession plans for advisers this year, about twice as many as they did in 2013, Mr. Bueermann said. Francisco Turner, managing director of Banc of California, said his bank is helping junior partners finance equity buy-ins into firms, as well as lending to facilitate breakaway advisers and helping with more traditional adviser acquisitions. The top consideration for the bank in these deals is the cash flow of the firm, but it also will want to get to know some of the firm's clients, Mr. Turner said. Lenders also will require a third-party valuation. Lisa Forest, a Banc of California Small Business Administration and commercial lending specialist, said small business loans have to be funding a 100% buyout, and that business net worth can be maximum of $15 million.

Latest News

Slow is smooth, smooth is fast
Slow is smooth, smooth is fast

Chasing productivity is one thing, but when you're cutting corners, missing details, and making mistakes, it's time to take a step back.

Edward Jones layoffs about to hit employees, home office staff
Edward Jones layoffs about to hit employees, home office staff

It is not clear how many employees will be affected, but none of the private partnership’s 20,000 financial advisors will see their jobs at risk.

CFP Board hails record July exam turnout with 3,214 test-takers
CFP Board hails record July exam turnout with 3,214 test-takers

The historic summer sitting saw a roughly two-thirds pass rate, with most CFP hopefuls falling in the under-40 age group.

Founder of water vending machine company, portfolio manager, charged in $275M Ponzi scheme
Founder of water vending machine company, portfolio manager, charged in $275M Ponzi scheme

"The greed and deception of this Ponzi scheme has resulted in the same way they have throughout history," said Daniel Brubaker, U.S. Postal Inspection Service inspector in charge.

Advisor moves: Raymond James, Wells Fargo reel in billion dollar-plus advisor teams
Advisor moves: Raymond James, Wells Fargo reel in billion dollar-plus advisor teams

Elsewhere, an advisor formerly with a Commonwealth affiliate firm is launching her own independent practice with an Osaic OSJ.

SPONSORED Delivering family office services critical to advisor success

Stan Gregor, Chairman & CEO of Summit Financial Holdings, explores how RIAs can meet growing demand for family office-style services among mass affluent clients through tax-first planning, technology, and collaboration—positioning firms for long-term success

SPONSORED Passing on more than wealth: why purpose should be part of every estate plan

Chris Vizzi, Co-Founder & Partner of South Coast Investment Advisors, LLC, shares how 2025 estate tax changes—$13.99M per person—offer more than tax savings. Learn how to pass on purpose, values, and vision to unite generations and give wealth lasting meaning