RIA Valuation Insights

A weekly update on issues important to the Investment Management industry

Industry Trends Transactions

RIA M&A Update: Q2 2024

Following a year where deal volume in the RIA industry nearly matched the all-time high of 2022, RIA M&A activity has cooled in 2024.  Fidelity’s May 2024 Wealth Management M&A Transaction Report (most recent available data) listed 86 deals through May 2024, down 17% from the 103 deals executed during the same period in 2023. In this post, we explore what this means for your RIA now and looking forward.

Industry Trends

RIA Market Update: Q2 2024

RIAs underperformed in the second quarter of 2024, with even the largest asset managers facing a decline in stock price in spite of a stronger asset base on which to collect revenue. Despite the price drop, all groups examined experienced growth in fundamentals year-over-year. We explore further in our Q2 2024 Market Update.

Industry Trends Transactions

New SEC Analysis of Form ADV Data

Insights on RIA Consolidation Trends

Consolidation is a theme that has a lot of traction in the RIA industry.  The prevailing narrative is that a growing multitude of buyers are scrambling to compete for a limited number of firms.  With the rapid pace of deal activity in the RIA industry, you might expect to see the number of firms decline. Despite consolidation pressures and record levels of acquisition activity, the reality is that the number of RIAs continues to increase, with new formations outpacing consolidation.

Transactions Valuation

Whitepaper Release: Assessing Earnings Quality in the Investment Management Industry

For this week’s post we’re introducing our whitepaper on quality of earnings analysis in the investment management industry.  For RIA buyers and sellers, commissioning a QofE report is an essential element of the due diligence process.  In essence, a well-executed QofE analysis not only reveals why a firm is profitable but also assesses the likelihood of maintaining and enhancing that profitability after the transaction.  This comprehensive approach ensures that both buyers and sellers make well-informed, strategic decisions in the RIA industry.

Current Events Transactions

Why Haven’t Higher Interest Rates and Inflation Derailed RIA Dealmaking Activity?

Just over 30 years ago, the Memphis Area Transit Authority (“MATA”) made the dubious decision to construct a trolley line traversing most of the city’s downtown area, and it hasn’t gone well. If MATA could do it all over again, I suspect they would permanently closed the trolley system altogether, given the issues they’ve had over the years. Last year, many RIA industry participants expected a similar cessation to dealmaking in the sector following the adverse impact of higher interest rates and inflation on investment managers’ AUM balances and profitability in 2022.  Fortunately for the industry’s bankers, these economic headwinds haven’t derailed the sector’s M&A momentum.

Transactions Valuation

Selling Your RIA? Five Ways to Bridge the Valuation Gap

Before parties to an RIA transaction can close, they must first agree on a price.  Narrowing that bid/ask spread is tricky, which is often why negotiations between prospective buyers and sellers fail.  Buyers and sellers naturally have different perspectives that lead to different opinions on value:  Where a seller sees a strong management team, a buyer sees key person risk. Unsurprisingly, these different perspectives on the same firm lead to varying opinions on value, and the gap can be substantial.  Bridging that gap is key to getting a deal done.  We address five ways buyers and sellers can bridge a valuation gap. 

Margins and Compensation Practice Management Transactions

Formula Pricing Gone Wrong

What Happens If Your Buy-Sell Agreement Prices Your Firm Too High or Too Low?

More often than not, the formula prices we encounter do more harm than good. The simplicity of formula pricing equations means they don’t consider important factors like debt, non-recurring items, loss of key staff or large customers, market conditions, or offers to purchase. Formulas can ground expectations but may set expectations unrealistically low or high, provide a false sense of security, and encourage partner behaviors that do not support the business model.

Asset Management Practice Management Transactions

Are Toxic Cultures the Silent Killers of the Asset Management Industry?

We’ve written about the external headwinds facing asset managers relative to other sectors of the investment management industry with scant reference to what actually causes many of them to fail: toxic cultures.  As valuation analysts, we’re more fixated on the quantitative measures of an asset management firm, like investment performance and client retention, so we often turn to actual industry participants to get the story behind the numbers.  Paul Black, CEO of WCM Investment Management, a $67 billion asset manager headquartered in Laguna Beach, California, provides great insights on the impact of culture on the viability of a money management firm.


Internal Transactions Are Still an Option for RIAs

With a constant stream of headlines about M&A and near-daily inquiries from prospective acquirers, it’s easy for RIA owners to get the impression that external transactions are the norm.  While internal transactions don’t generate headlines, prospective buyers (next-gen management) likely aren’t beating your door down to close a deal. While they may be less conspicuous, internal transactions are a viable avenue for succession planning and one that many RIAs accomplish successfully. 

Investment Management

Mercer Capital provides RIAs, trust companies, and investment consultants with corporate valuation, litigation support, transaction advisory, and related services