We speak with John Furey, founder of Advisor Growth Strategies, about why he expects mergers and acquisition M&A deal structures in the registered investment advisory RIA space to continue to evolve, as well as the top trends shaping dealmaking. Furey also shares why wealth management M&A dealmaking activity is up despite an uncertain economic environment.
What is the mergers and acquisition M&A activity like in the registered investment advisory RIA world so far this year? Do you expect this to continue?
M&A activity in the RIA space has been strong so far this year, with deal volume and total deal value both steady compared to last year. Research conducted for the 2023 RIA Deal Room report and recent evidence indicate we can expect dealmaking to remain at a robust level throughout 2023 and into the future. Those transactions may take longer to consummate, and the deal structure is likely to be more creative with buyers and sellers sharing risk.
Favorable conditions in the industry, including strong demand for wealth management firms, ongoing consolidation, and readily available capital, are expected to continue to drive M&A activity in the RIA space.
What are some top trends shaping dealmaking in the RIA space?
We expect to see M&A deal structures continue to evolve. Some of the top trends include the increasing demand for financial planning and investment advice, the trend toward consolidation in the industry, the availability of capital for financing transactions, and the need for firms to build scale and gain a competitive advantage in an increasingly crowded marketplace. Strong valuations for high-quality firms are also contributing to the trend.
Private equity investment in RIAs surged last year, how has that impacted M&A for the RIA space?
Private equity investment has become a major factor for RIA M&A, with a number of large benchmark transactions taking place. This has increased competition for high-quality firms and driven up valuations, making it more challenging for some buyers to find attractive targets.
Despite an uncertain economic environment, wealth management M&A dealmaking activity is up, why is that?
We are seeing evidence of activity remaining strong in 2023. There are actually a couple of reasons. First of all, the industry has matured to the point where there are quite a few firms large enough to attract outside investors like PE firms and family offices. It’s also important to note that sellers have reasons other than achieving maximum valuations for coming to market. M&A can solve succession issues, add the ability to attract new HR talent and provide incremental resources for growth. The COVID19 pandemic has accelerated the adoption of digital technologies and shifted client preferences towards remote communication and virtual advice delivery, leading to increased interest in firms with strong digital capabilities.
Are M&As still a good way for RIAs to achieve quick growth?
Yes, M&A can be an effective way for RIAs to achieve growth, particularly as the industry continues to consolidate and firms seek to build scale and gain a competitive advantage. However, it’s important for firms to carefully evaluate potential targets and ensure that the strategic fit is strong in order to maximize the benefits of the transaction. In addition, firms can’t lose sight of organic growth as that tends to be a less expensive form of growth in the industry.
What is one of the most interesting transactions you have seen this year?
Focus Financial going private for sure. It’s an interesting transaction given most industries want to trade in the public market to gain higher valuations and greater liquidity. In our industry, private transaction valuations for the best firms are higher than any relative benchmark in the public market. Focus Financial was able to unlock value through a private transaction. It will be interesting to see the evolution of their strategy.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.