The future fuel for mergers and acquisitions? RIA business management


RIA M&A has started 2022 strong. Fidelity Investments reported that 93 deals closed through May, representing a 29% increase over the same period in 2021. Conditions have changed rapidly, and markets are turbulent and rising interest rates raise questions about how the industry is moving forward. . These headwinds shed light on the acquisition brands in place that have accounted for more than 69% of transactions over the past few years and the potential impact on buyer and seller preferences in the future. RIA’s M&A activity will continue in earnest – the challenge now is to stand out from the crowd.

Today’s RIA M&A market is multifaceted and built on a foundation built by years of competitive evolution. The influence of institutional capital, the imperatives of absolute growth and the race for unprecedented geographical presence have given rise to the brand of acquisition which clarifies the creation of value for all stakeholders. The RIA 2022 Dealing Room noted that the influence of institutional capital has pushed demand and professionalization into the space. The result is an increased focus on differentiated operating models and effective value creation plans. Financial buyers, platform-focused investors and integrators have clarified their targets and what they value in a seller. This has led to the rise of the systematic acquirer which balances near-term and future financial results with a focus on talent, capability and geographic expansion.

The RIA seller market has grown significantly over the same period. Trading volumes increased and the tailwinds to supply remained constant. RIAs seeking growth capital, liquidity and infrastructure resources are testing a competitive market. Increased trading volumes are good for headlines, but they create a more crowded field for potential sellers to stand out.

Business management: the real differentiator

RIA M&A started with a small set of acquisition brands with a size advantage and credible access to capital to gain a foothold. Today, access to capital and size are table stakes. With more than 20 acquisition brands completing multiple transactions in 2021, the competitive frontier has shifted to mature business management practices that support an elevated customer experience. Business management best practices are no longer just for companies that aspire to remain free from outside funding or partnerships. The success of RIA mergers and acquisitions now depends less on quantitative metrics and more on three critical areas of business management.

  • Talent – The ability to find, engage and retain next generation talent with the right combination of career growth, compensation and ownership opportunities.
  • Infrastructure – A story of investing in management, technology and process improvement infrastructure.
  • Services and Channel Penetration – A credible track record of expanding service offerings to end investors or providing access to unique channels to end investors.

These three categories of business management primarily point to a buyer or seller adding measurable organic growth, efficiency, and capacity to another organization. These areas also become tangible ways to differentiate the story an RIA tells the market. These areas have also become the difference between standing out from the crowd and not.

Buyers: systematize your story or get out of the way

Almost all of the buyers surveyed for the RIA Deal Room 2022 study indicated that they plan to make as many acquisitions as in previous years. The AGS team expects acquisition brands with a systematic approach to remain active as these companies are much more likely to focus on deal structure and growth sharing as a method of balancing risk while by executing the business plan. Since 2019, deal structures have reflected a flight to certainty driven by competition, cheap capital and strong tailwinds in the market. The near future will likely look like years when deal structures were more balanced and risk was shared more appropriately.

However, the new M&A foundation includes a highly competitive environment that forces buyers to differentiate themselves. People, processes and opportunities for growth are at the forefront of the messaging, and systematic integrators showcase their business management depth to win acquisition opportunities. These platforms can highlight how they have implemented compensation, benefits, technology, extended services, and operational process to demonstrate how potential sellers can “get to the front of the queue” and avoid large investments in time and capital. Any company aspiring to become more than an opportunistic buyer needs to look inward and systematize its story or risk losing out to more developed platforms.

Sellers: protect your positioning or accept average results

The increase in supply is evidenced by the steady increase in the number of transactions in the RIA space. According Loyalty investments, 215 RIA transactions took place in 2021 compared to 131 in 2020. Although this number is likely underestimated due to unreported transactions, it indicates that more companies are interested in selling or merging than ever before. Succession, management fatigue, and growth channels are all tailwinds that drive AIRs in the market, and these tailwinds are mostly indifferent to market fluctuations. This implies that the pool of available sellers is likely to increase or remain stable.

What makes your company different from the dozens of other companies that acquisition brands review? Assuming that buyer demand can plateau or at least be measured under current market conditions, differentiation becomes essential to achieve an optimal outcome. It must come from a combination of next-gen talent, specialized services, or unique end-customer channel penetration.

The increase in buyer demand and seller volume means that business management practices are more critical than ever. A cohesive platform story that includes how a wealth management company adds value and engages people is necessary to stand out in a crowded buyer realm. These same business management practices are necessary for sellers to earn a premium by showcasing strong talent, unique capabilities, or unique growth channels. The foundation for mergers and acquisitions has been established in the RIA industry, and the ability to stand out from the crowd will rest entirely on how RIA has built a story worth buying.

Brandon Kawal is a Principal at Advisor Growth Strategies, a management consulting firm serving the wealth management industry. Follow him on @BKawal_AGS.


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