Transaction Advisory, Investment Management

May 20, 2019

What We’re Reading on the RIA Industry

M&A and Practice Management

Much of the sector’s recent press has focused on the current M&A environment as well as practice management issues for RIA firms, so we’ve highlighted some of the more salient pieces on these topics and a few others that are making news in the investment management industry.

Goldman Sachs Readies Splashy RIA Retail Debut as it (Likely) Adds $24-Billion United Capital to $35-Billion AUM Ayco for $59-Billion 82 Office Behemoth; Months After Buying RIA Lure From S&P

By Oisin Breen, RIABiz Goldman Sachs recently completed its acquisition of United Capital for $750 million, marking a major expansion into the RIA space for Goldman and a significant endorsement of the RIA aggregator model.  The deal value represents approximately 3% of United Capital’s $24 billion AUM and a little over 3x revenue of $230 million.

M&A Gains Drive Focus’ 33% Revenue Growth

By Jessica Mathews, FinancialPlanning RIA aggregator Focus Financial reported 33% year-over-year revenue growth in the first quarter.  The growth comes primarily from new partner firms acquired over the last year.  In its IPO filings last year, Focus management outlined a growth strategy based on continued M&A and organic growth at Focus’s partner firms.  While organic growth has faltered somewhat (partly due to market conditions), Focus has clearly executed on the M&A component of its growth strategy.  So far this year, Focus has acquired 21 firms, with 12 of those acquisitions taking place in the first quarter.

Bye-bye Broker Protocol: HighTower Exits in Identity Makeover

By Charles Paikert, FinancialPlanning HighTower Advisors has exited the broker protocol, the industry agreement which allows advisors switching employers to take basic client contact information with them.  Exiting the protocol reflects the evolution of HighTower’s business model from recruiting wirehouse teams to focusing on RIA acquisition activity.  For some, the decision to exit the protocol is seen as a way to increase retention — perhaps in preparation for a future liquidity event.  With recent liquidity events from the other two major roll-up firms, Focus Financial and United Capital, now may be a good time to exit for PE-backed HighTower.

U.S. Wealth Management Becomes Hotbed of M&A 

By Chris Flood, Financial Times Private equity interest in wealth management has continued to increase, given the industry’s growth opportunities and stable cash flows.  The wealth management industry remains highly fragmented but is poised to consolidate.

Merger Mania: Why Consolidation in the RIA Space is About to Explode

By Jeff Benjamin, InvestmentNews Some industry players see the pace of consolidation picking up.  Ron Carson, CEO of Carson Group, predicts that in seven years there will be a third less firms than there are today.  Historically, there has been less consolidation than we would expect given the size and fragmentation of the industry.  However, given the current dynamics of aging ownership, PE interest in the space, and consolidators offering scale and back office efficiencies, the pace of M&A may accelerate significantly.

Kitces: The Ratios That Determine Advisory Firm Success

By Michael Kitces, FinancialPlanning Tracking productivity, identifying its drivers, and understanding how to improve are important aspects of managing a successful advisory firm.  Michael Kitces offers his take on some of the key performance metrics for advisory firms.
In summary, consolidation and M&A continue to be major trends in the investment management industry.  RIAs continue to receive interest from PE investors due to the recurring revenue and growth potential that wealth management firms offer.  Aging ownership bases have also contributed to the consolidation tailwind.  The RIA aggregator model has now been endorsed by Goldman Sachs with its acquisition of United Capital, as well as the public markets with Focus Financial’s IPO last year.  Whether HighTower’s PE backers will seek an exit in the near term remains to be seen, but given the interest in the Focus IPO and the attractive multiple offered by Goldman for United Capital, it is clear that market interest in the aggregator model is strong.

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What Today’s RIA M&A Headlines Tell Us About Valuation and Succession
What Today’s RIA M&A Headlines Tell Us About Valuation (and Succession)
RIA M&A headlines can create the impression that valuation is primarily about scale and headline multiples. In reality, today’s transaction environment reflects a more nuanced assessment of risk, growth, governance, and succession readiness.
Five Takeaways from Dimensional Fund Advisors’ Deals and Succession Conference
Five Takeaways from Dimensional Fund Advisors’ Deals and Succession Conference
Our team attended Dimensional’s Deals and Succession Conference in Charlotte this week, where industry leaders gathered to discuss the evolving M&A and succession landscape. While activity remains strong, this year’s conversations centered more on growth quality, equity structure, leadership depth, and cultural alignment than on deal volume alone.
Are IPOs in the Future for Wealth Management?
Are IPOs in the Future for Wealth Management?

Private Enthusiasm, Public Skepticism

There is a quiet irony developing in wealth management. Private equity firms continue to pay premium, sometimes nosebleed, prices for large RIA platforms. Acquisition funding continues to be available and consolidators keep consolidating. Even as private market exits have slowed and fundraising has become more difficult, sponsors remain willing to commit fresh capital to the sector. At the same time, public markets have shown only modest enthusiasm for investment management businesses.

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