Hightower CEO says RIA acquisition prices remain reasonable

The market for RIA firms hasn't cooled so far in the first quarter of 2024, but acquisition prices aren't yet overheated, says Bob Oros, chairman and CEO of Hightower Advisors.

“We think conditions continue to be very good for doing M&A, but we also have a lot of discipline around what is a good fit for Hightower,” Oros said.

He adds that the market is not constrained either, which is also helping keep prices within reason.

“There's more net new RIAs being created every year, so consolidation is still a long way from playing out,” said Oros, who struck his first big deal of the year in January with the purchase of Capital Management Group, a financial planning firm overseeing $3.3 billion in assets.

As a private company, Hightower doesn't disclose financial data, including revenue. At last check, it boasted about 138 advisory businesses in 35 states and the District of Columbia, with AUM totaling about $131 billion.

Despite Oros’ belief that the bidding for small advisory firms has not reached tilt level, he admits that the number of deep-pocketed, private equity-backed bidders has grown and will keep the pots humming for a while. Hightower, for the record, received its first capital infusion of $100 million in 2017 from Thomas H. Lee partners and has been an active acquirer ever since, completing about a dozen deals last year.

“It does seem like there are a lot of RIAs that have like serious professional capital behind them, us included,” he said. “But I think it doesn't necessarily imply things will get bid up because we all have our own unique approach to it.”

“I think most of us also have good discipline about what we're willing to pay,” Oros continued. “And we're not going to overpay for something just because somebody else might see it as a better fit for them.”

The first two months of this year saw a 20 percent increase in transactions when compared to the same period a year earlier, according to DeVoe & Co., a consulting and investment banking firm for RIAs. Year to date, 49 transactions have been announced, versus 41 transactions during the same period last year, according to DeVoe.

For the record, the spike in activity follows the full-year decline in 2023, which was the first downtick in annual M&A volume in more than a decade.

As to what makes for a comfortable fit when purchasing a firm, Oros says it starts with the quality of the leadership team. He wants people who are “hyper-focused on the client relationship and the client experience.”

After that, he wants to be in business with RIAs that have shown the ability to grow organically – not one year of organic growth, but multiple years. That’s because organic growth is how Oros wants to expand Hightower, no matter if the market considers the firm a serial acquirer.

“Inorganic is one of our strategies, but organic is strategy No. 1,” he said. “Why? Because we think the healthiest businesses have an ability to grow on a same-store-sales basis. So we want advisors who can find the next new client, who can deepen share of wallet with an existing. And then we think we can be a catalyst to help them do more of it.”