RIA Valuation Insights

August 6, 2019 Current Events

Is 16x Pro Forma EBITDA a Realistic Valuation for Mercer Advisors?

Pre-season Soccer and the Mercer Price Tag are Likely More About Form Than Substance

We were intrigued (and skeptical) of the recent reports that RIA aggregator Mercer Advisors was looking to fetch a $700 million-plus price tag in a prospective sale by its PE backers at Genstar Capital. A 15-16x multiple on an estimated pro-forma, run-rate EBITDA of approximately $50 million results in a $750 million to $800 million enterprise value for the business, which certainly got our attention. Still, this figure could be meaningless if it’s an unlikely appraisal of Mercer Advisor’s current market value. For this week’s post, we’ll address our opinion from a fair market value and strategic value perspective.

July 29, 2019 Current Events Transactions

One Year Later: The Focus IPO Reshaped the RIA Industry

Attention Drives Activity

It’s been a year since the Focus Financial IPO generated a similar level of conversation in the RIA community – and the transaction dominos have been falling ever since.  In that same year, Victory Capital pulled off a major acquisition, Affiliated Managers Group got back into the acquisition game following a two-year hiatus, United Capital was acquired by Goldman Sachs, and Mercer Advisors is soliciting bids.

I was thinking about all of this on a road trip across the southeast last week, in-between blasting Tom Petty on satellite radio and dropping in on a few clients.  At one of my first stops, a client asked if I saw a lot of M&A activity in the RIA space.  Yes, I replied, but I see even more headlines about it.  Plenty has changed in the RIA community in the last twelve months, but even more has not.

July 22, 2019 Asset Management Transactions

Q2 2019 Asset Manager M&A Trends

Asset and Wealth Manager M&A Keeping Pace with 2018’s Record Levels

Through the first half of 2019, asset and wealth manager M&A has kept pace with 2018, which was the busiest year for sector M&A over the last decade. M&A activity in the back half of 2019 is poised to continue at a rapid pace, as business fundamentals and consolidation pressures continue to drive deal activity. Several trends, which have driven the uptick in sector M&A in recent years, have continued into 2019, including increasing activity by RIA aggregators and rising cost pressures.

July 15, 2019 Practice Management Trust Companies

Are Trust Companies Changing for the Better?

Trust Company Sector Update

Trust law has evolved over time, most recently with modern trust laws in the 1980s and 90s established by certain states such as Delaware, Nevada, and South Dakota. Other states, such as Tennessee, have developed compelling trust statutes in more recent years. Just as trust law has changed with the regulatory environment, trust companies are changing to meet clients’ evolving needs.

July 9, 2019 Practice Management Transactions

Unsolicited Offers for Your RIA

Is the First Bid the Best?

The primary danger of an unsolicited offer is that it lures potential sellers into thinking the deal is done and the process will be easy.  As with most things in life, if something looks too good to be true, it usually is.

July 1, 2019 Industry Trends

Q2 2019 RIA Market Update

Asset Management Stocks Find Some Relief After Year-End Rout

Broad market indices generally increased over the last quarter, and publicly traded asset and wealth manager stocks followed suit.

Publicly traded traditional asset and wealth managers ended the quarter up 6.2%, beating out the S&P 500, which rose 2.6%.  Alt managers were the bright spot in the sector, up nearly 18%.  Aggregators and multi-boutique model firms did not fare well, despite all the hype about consolidation pressures in the industry and the high-profile deals in the aggregator space.  These businesses ended the quarter down more than 14%.

June 24, 2019 Current Events Wealth Management

Fidelity’s Latest Move to Stay on Top of RIA Trends

Fidelity’s Partnership with Merchant Investment Management

On June 10th, Fidelity Clearing & Custody Solutions and Merchant Investment Management announced a new partnership to increase wealth managers’ access to capital for acquisitions and growth initiates. The deal opens up a sizable new sales channel for Merchant, and in return, Fidelity’s behemoth platform tacks on a few additional selling points to entice M&A-minded RIAs. 

June 17, 2019 Asset Management Industry Trends

Are Value Managers Undervalued?

Growth Investing Has Outperformed Value for Quite Some Time Now, and the Market’s Taking Notice

Significant underperformance relative to both the market and growth alternatives has led to continued outflows from institutional investors, which in turn has hampered AUM, revenue, and earnings growth despite relatively favorable market conditions. Since the multiple has also slid for these businesses, it appears that the market is anticipating more of the same. Against this backdrop, we address this post’s original question as to whether or not value managers are indeed undervalued at the moment.

June 10, 2019 Practice Management

The Ultimate Investment Vehicle

Is the Value of your RIA More a Function of Risk or Growth?

On paper, the RIA model is a value generating machine: a reliable stream of distributable cash flow resulting from sticky, recurring revenues and growing effortlessly with the investment returns available in a diversifiable variety of financial markets. The reality, of course, is more nuanced.

June 3, 2019 Industry Trends

Why Has the Public Market Soured on RIA Consolidators?

Recent Capitulations for AMG and Focus Suggest Investors are Starting to Question Their Business Model

While it’s no secret that the last year has been especially challenging for the RIA industry, Affiliated Managers Group (AMG) and Focus Financial (FOCS) have underperformed most of their peers by a fairly significant margin in the last few months.  AMG is down nearly 50% over the last year, and Focus has lost over 50% of its value since peaking last September. For this post, we’ll offer our take on the driving forces behind this decline.