Playing the Match Game: Finding the Perfect Fit Between Buyers and Sellers

Guest Post by Louis Diamond of Diamond Consultants


For most independent RIAs, a future M&A transaction is inevitable.  The impetus behind the transaction could be the partners’ desire to retire, gain scale, accelerate growth, meet liquidity needs, reduce the time burden of non-client facing tasks, or some other motive.  Whatever the reason, picking the right partner is critical for the success of the transaction.  

For both buyers and sellers, knowing where your firm fits into the RIA M&A landscape is an important first step towards identifying compatible transaction partners.  The universe of RIA sellers can be categorized based on firm culture, the motive behind the transaction, management’s expectations for post-transaction roles, liquidity needs, the status of next-generation management, and the like.  As RIA transactions have proliferated in recent years, several different buyer profiles have emerged that address the concerns of these different seller types.  In this week’s guest post, Louis Diamond of Diamond Consultants identifies four common buyer profiles and the types of sellers that fit well with each.

Louis Diamond will be speaking on the topic of advisor recruitment and acquisitions at our upcoming RIA Practice Management Insights conference, to be held March 3-4.  Register now to hear more from Louis Diamond along with keynotes from James Grant, founder and editor of Grant’s Interest Rate Observer, and industry veteran Peter Nesvold, Managing Director of Nesvold Capital Partners.

Most acquirers have traits within one of four categories—each offering a unique value to sellers. And having the “right” persona can make all the difference in attracting the right acquisition partners.

Many independent firms reach a point in their business lifecycle where they can no longer sufficiently grow or compete on their own. It’s when discussions around finding a way to gain scale and solve for succession hit a wall that firms often consider a merger or acquisition opportunity. Yet finding the right M&A partner isn’t all that easy.

As a firm that represents both buyers and sellers, it’s our job to keep a finger on the pulse of the market and listen to many value propositions from prospective buyers. That said, only a handful of firms are truly poised to be meaningful acquirers in this hyper-competitive marketplace. Attributes such as being well-capitalized (given that most sellers expect a decent portion of the purchase price at closing), having a repeatable and battle-tested M&A process, a unique value proposition, and strong leadership are now table stakes in this environment.

Buyers and sellers alike often fail to recognize what a marriage between firms can mean for ongoing control, growth and quality of life. Therefore, it is paramount that firm owners are strategic in how they present their value to prospective sellers—and sellers come to the table prepared with clearly identified expectations of the new affiliation.

One key area that many buyers often lose sight of – which helps to focus targeting, due diligence efforts and proper alignment – is being clear and honest about what “type of acquirer profile” your firm represents to a prospective seller. It’s equally important to recognize that remaining consistent in this regard is critical; that is, once a firm persona is established, any variances can lead an organization astray of its core competencies and culture, ultimately suppressing enterprise value. And for sellers, recognizing their goals and matching those with one of the four profiles will ultimately translate into a more strategic and focused sale process.

The Four Acquirer Profiles

We find that most acquirers have traits within the following four categories—each of which offer a unique value to sellers.

1) Standalone RIAs

These firms are exemplified by a “one brand, one firm, one investment” approach. The most successful acquirers in this group manage more than $1B in assets and have a similar culture, operating structure, and approach as the firms they acquire. They tend to do a small number of deals, so they are typically more strategic in nature than financial. These firms may sometimes allow the seller to maintain an active voice in steering the ship and become a relatively significant equity holder, if so desired. Additionally, all back office and business operations will be taken off the seller’s plate.

Another important distinction for those who become an equity owner: There is still the possibility of a significant liquidity event down the road if they take on an investor or sell the firm.

  • Examples: Numerous RIAs have completed a handful of deals and are embarking upon M&A for the first time.
  • Most attractive sellers: Principals who have a longer runway to retirement and are still looking to retain some managerial duties, and those who are primarily focused on a good cultural or local fit. Or an advisor close to retirement who identifies an ideal hand picked successor already at the acquiring firm.
  • Least attractive sellers: Those who value maximum upfront money since these firms are not backed by deep-pocketed investors; those wanting more of a national footprint or brand; or anyone looking to remain fully in charge of operations, since to an extent, investment management and financial planning are standardized across the firm. Also, sellers looking to get a deal done quickly might steer clear of acquirers in this category as these standalone firms tend to be less-experienced deal makers.

2) Aggregators or Rollups

Firms that are very well-capitalized, prolific deal makers are frequently referred to as aggregators or rollups. They excel at operations, streamlining businesses, standardizing processes, and maintaining strong communities of like-minded advisors. They will take over the entire investment management program, as well as the financial planning process—essentially everything aside from client service. Many firms in this category have cracked the code on organic growth so may have a dedicated business development team, a well-oiled digital marketing or seminar-based lead development system, or be active in the various custodial referral programs.

  • Examples: Mercer Advisors, Beacon Pointe, Mariner, Allworth, and Buckingham.
  • Most attractive sellers: Firms that believe the acquirer has built a “better mousetrap” and are in complete lockstep with the acquirer’s values (i.e., a hard-core focus on financial planning). Also, a good fit those seeking an exit strategy or to gain considerable scale and vastly accelerate organic growth, as well as those who want to step away from the day-to-day operations and just focus on clients.
  • Least attractive sellers: Any principal who is not ready to give up full control.

3) Platform Acquirers

These are organizations with many different types of businesses under one roof, but with common middle- and back-office infrastructures. They want sellers to leverage their platform and scale, yet they are all about letting businesses continue to operate in silos.

  • Examples: HighTower Advisors, Kestra Financial (Bluespring Wealth), Stratos Wealth Partners, Sanctuary Wealth Partners
  • Most attractive sellers: Those who are seeking a partial liquidity event or looking to step back from business ownership, yet still value being involved with portfolio management, financial planning, maintaining their brand, prospecting, and even running their own P&L.
  • Least attractive sellers: Advisors who are close to retirement, yet do not have a succession plan; those who are seeking dedicated resources to fully take on planning, investment management, and day to day client facing responsibilities; and those who are no longer interested in managing a business.

4) Financial Buyers or Investors

There’s no shortage of capital chasing the independent wealth space as countless private equity firms, family offices, sovereign wealth funds, and diversified financial services companies have made passive investments in larger scale firms. These firms offer prospective sellers the ability to take significant chips off the table by selling a portion of their business. They serve as a strategic growth partner to assist in the sourcing, structuring, and financing of sub-acquisitions, as well as provide the opportunity to retain brand and the client service model.

  • Examples: Focus Financial Partners, Wealth Partners Capital Group, Emigrant Partners, Merchant Investment Management, CI Financial
  • Most attractive sellers: Those who value maximum upfront cash, retaining day-to-day control of the business, minimizing change, and growing by way of acquisition.
  • Least attractive sellers: Advisors looking to offload the non-client service and business development processes, a firm without an internal succession plan, firms that struggle with profitability and scale, those less interested in focusing on organic and inorganic growth.

A merger or acquisition can benefit both parties involved, provided each are equally motivated with compatible needs and goals. By identifying the unique needs and requirements of each party (prior to engaging in an M&A project), the process of meeting the right match can be far more efficient and lead to a successful marriage.

About the Author

Louis has guided many of the top teams in the industry as they’ve transitioned to another employee-model firm or launched RIA firms. And as a next generation leader himself, Louis has a passion for representing complex multi-generational teams.

A George Washington University magna cum laude graduate with a BBA degree in Finance and International Business, Louis began his career with some of the biggest names in the financial services industry. His time working as a consultant at Ernst & Young, and in wealth management at Morgan Stanley and UBS, well prepared him to understand the financial world from a client’s perspective.

We’re excited to have Louis speak at our inaugural RIA Practice Management Insights conference.