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

The 2025 InvestmentNews Awards Excellence Awardees revealed
The 2025 InvestmentNews Awards Excellence Awardees revealed

From outstanding individuals to innovative organizations, find out who made the final shortlist for top honors at the IN awards, now in its second year.

Top RIA Cresset warns of 'inevitable' recession amid tariff uncertainty
Top RIA Cresset warns of 'inevitable' recession amid tariff uncertainty

Cresset's Susie Cranston is expecting an economic recession, but says her $65 billion RIA sees "great opportunity" to keep investing in a down market.

Edward Jones joins the crowd to sell more alternative investments
Edward Jones joins the crowd to sell more alternative investments

“There’s a big pull to alternative investments right now because of volatility of the stock market,” Kevin Gannon, CEO of Robert A. Stanger & Co., said.

Record RIA M&A activity marks strong start to 2025
Record RIA M&A activity marks strong start to 2025

Sellers shift focus: It's not about succession anymore.

IB+ Data Hub offers strategic edge for U.S. wealth advisors and RIAs advising business clients
IB+ Data Hub offers strategic edge for U.S. wealth advisors and RIAs advising business clients

Platform being adopted by independent-minded advisors who see insurance as a core pillar of their business.

SPONSORED Compliance in real time: Technology's expanding role in RIA oversight

RIAs face rising regulatory pressure in 2025. Forward-looking firms are responding with embedded technology, not more paperwork.

SPONSORED Advisory firms confront crossroads amid historic wealth transfer

As inheritances are set to reshape client portfolios and next-gen heirs demand digital-first experiences, firms are retooling their wealth tech stacks and succession models in real time.