Many of today’s most active acquirers are RIAs that did their first deal just a few short years ago. MAI Capital Management, for example, has now initiated 10 transactions since 2019, with three acquisitions so far this year. A minority investment from Wealth Partners Capital Group helped jump-start the buying spree.
RIAs are often attracted to the fast-tracked growth that can result from acquiring another firm. The opportunity for RIAs to pursue an acquisition strategy is real. As noted in last quarter’s Deal Book, the number of sellers has doubled over the last five years, while the number of active buyers has ticked up only 40%. This suggests that there is room for more buyers.
In addition, many of the more active acquirers are focusing on larger firms of $500MM in AUM or more. This indicates overlooked opportunities for acquiring smaller firms. Further, an RIA negotiating a transaction with another like-minded RIA has a unique value proposition. From a seller standpoint, the RIA-RIA “merger of equals” or selling to a another RIA is often perceived as less disruptive in terms of a cultural fit relative to teaming up with a different type of acquirer.
While many RIAs want to become acquirers, only a portion of aspiring buyers are qualified. Those select firms that are successful learn that executing the purchase of another business — from the initial plan through final signatures and full integration — is a long and challenging endeavor.
Without an investment banker involved, a year or more is often required to complete a transaction. RIAs contemplating an acquisition will be well-served to conduct a careful analysis to determine whether the firm is in the right place, with the necessary resources and appetite, to move forward as a buyer.
What does it take to become a successful buyer?
A partial list includes:
A strategic growth plan that gives context for why M&A is important for the firm
A target profile detailing the characteristics of the firm’s optimal transaction partner
A value proposition that clearly articulates what prospective sellers can gain from joining the firm
Expertise in all the fundamentals of M&A that includes a deep understanding of sourcing candidates, valuation, deal structure, negotiation, integration plans and more, if this expertise is not provided from an investment banker
People and bandwidth dedicated to the lengthy, complex M&A and integration processes
Access to capital for the size of transaction the firm is targeting
Specialized support, including the services of an attorney and tax advisor
A seamless integration strategy for individuals and teams from the acquired RIA
A robust operational infrastructure to support additional personnel, clients, accounts and assets
With these essentials in place, a firm can move ahead with greater assurance, successfully incorporating M&A as a vital component of its growth strategy