Don’t look for the red-hot pace of RIA firm transactions to cool off anytime soon. That was the view of experts taking part in a panel session on firm valuation at the InvestmentNews RIA Summit on Wednesday.
“This year is on track to see a peak number of transactions,” said panelist Elizabeth Nesvold, a managing director and head of asset and wealth management investment banking at Raymond James. “Last year, there were 345 transactions in RIA-land, with 200 in wealth management alone. And that was during a pandemic!”
Nesvold said that despite the seemingly blistering pace of activity, only about 2% to 3% of all the 14,000 or so SEC-registered RIA firms are involved in a change of ownership in any year, implying the business is actually quite stable.
While the aging of the nation’s advisory force is creating an ample supply of firms looking to be acquired, demand is coming from a variety of sources, she said, fueled by low-cost borrowed money.
“There is a lot of interest in the space among private equity firms, because we feel the industry’s tailwinds will continue,” said Saurabh Desai, a principal at the private equity firm of Lovell Minnick Partners. “The combination of aging baby boomers and the increasing complexity of investment products and asset classes is leading to more demand for advice.”
He said private equity firms’ access to low-cost capital and their experience in centralizing platforms and core functions has resulted in many of them taking stakes in larger registered investment adviser firms and encouraging them to grow through acquisitions.
The desire of clients to work with teams and the need for firms to offer expertise in a variety of specialties also are forces driving acquisitions, said Kay Lynn Mahue, president of the Merit Financial Group, an Alpharetta, Georgia-based hybrid RIA.
“As we expand, we look to become a big presence in any new market we enter,” Mahue said.
When asked by session moderator and InvestmentNews senior columnist Jeff Benjamin about firm valuations and whether they have risen in light of current demand, panelists were in agreement. They said valuation tends to vary by deal.
“For us, it depends on what special qualities an acquisition can bring to our firm,” said Mayhue.
“It’s really about deal structure,” said Nesvold, explaining that how and when a seller gets paid and whatever compensation arrangements they make for after the acquisition closes all factor into the value of the deal.
“Normalized EBITDA is an important part of valuation, and larger firms tend to get more,” she said.
Aging populations and underfunded systems are forcing wealth managers to rethink how they prepare clients for retirement.
A new Morgan Stanley survey signals a fundamental shift in how employees view retirement benefits - and raises the stakes for plan advisors.
Proposition 40 wealth tax could raise $30 billion, not $100 billion, as departures erode the base and voters remain split.
Jump is piping FMG marketing content into post-meeting workflows as Zocks opens its platform to more than 32,000 LPL financial advisors.
Trevor Uhls pleaded guilty to one count of wire fraud and one count of money laundering.
Knighthead Life entered the market with a competitive MYGA. A strong launch earned advisor confidence and paved the way for FIAs.
As AI makes financial information more accessible than ever, Lana Hock explains why human judgment, trust, and empathy remain the qualities clients value most in a financial advisor
