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Many independent firms reach a point in their business when they’ve hit the proverbial ceiling. That is, they recognize that they cannot sufficiently grow or compete any further on their own. The ability to break through that ceiling, gain scale and even solve for succession typically means considering a merger or acquisition opportunity. Yet finding the right M&A partner can be an arduous task.
Even though most firms in the market consider themselves “acquirers” – and just as many business owners feel they are ready to start taking meetings from these would-be acquirers – not all connections are poised to create a perfect marriage. Understanding the requirements and “personalities” of those seated on both sides of the table is key to creating a successful merger. So before you start taking those meetings, it makes perfect sense to educate yourself on the different profiles of typical acquirers and the types of firms they are seeking to fill a need in their business plans.
Meet the Acquirers
We find that most acquirers fall into 1 of 4 categories:
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 $500mm in assets and have a similar culture, operating structure, and approach as the firm they acquire. They tend to do a small number of deals, so they are typically more strategic in nature than financial. The benefits of these firms are that the seller can likely maintain an active voice in steering the direction of the ship, become a relatively significant equity holder (if so desired), and have the opportunity to still run your office the way you want. Additionally, all back office and “business operations” will be taken off your plate.
Another important distinction comes for those who become an equity owner. There is still a very significant liquidity event down the road if they take on an investor or sell the firm.
Examples: Multi-billion dollar wealth management firms, such as Aspiriant, RMB Capital, and Wescott
A good fit for: Principals who have a longer runway to retirement and are still looking to retain some managerial duties, and those who are most focused on a good cultural fit.
Not a good fit for: Sellers who value maximum upfront money or those wanting more of a national footprint or brand. Anyone looking to remain fully in charge of operations, since to an extent, investment management and financial planning are standardized across the firm. Also, those looking to get a deal done quickly might steer clear of this category as these standalone firms tend to be less experienced deal makers.
Aggregators or Rollups
These are firms that are prolific deal makers, and since they are very well capitalized, they are positioned to do so. 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, financial planning process, and essentially everything aside from client service and business development.
Examples: Mercer, Beacon Pointe, Mariner, United Capital, and Edelman
A good fit for: 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 fit for smaller firms looking for an exit strategy or to gain considerable scale, and those wanting to step away from the day-to-day operations and just focus on clients.
Not a good fit for: Any principal who has not made peace with giving up full control.
Platform Acquirers
These are organizations with many different types of businesses under one roof, but with common middle- and back-office infrastructure. While they want you to leverage their platform and scale, they are all about letting businesses continue to operate in silos.
Examples: HighTower Advisors, Kestra Financial, and United Advisors
A good fit for: 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, prospecting, and running their own P&L.
Not a good fit for: Advisors who are close to retirement yet do not have a succession plan; those who truly want to retain a hands-on client management role; or, those who want to focus only on business development.
Related: The 7 Drivers of Enterprise Value
Private Equity-Backed RIAs (“Tuck-ins”)
These offer the same benefits and story as standalone RIAs but have deeper pockets, stronger deal-making expertise, and a more professionalized acquisition process. There’s also stronger possibility to leverage them for your own M&A activities. The firm would take all the operations, compliance, HR, and administrative activities off your plate, yet still allow you to retain local operating control.
Examples: Focus Financial Partners, the industry’s leading investor in the independent space now has 50 individual partner firms under its umbrella, (any of which could be a solid acquirer with strong capital backing, including Colony Group, Buckingham), Wealth Partners Capital Group (e.g., MAI, Forbes Family Trust), and AMG (Affiliated Managers Group) Wealth Partners (e.g., Welch & Forbes, Veritable)
A good fit for: Those who value maximum upfront cash, are looking for a more boutique organization, and in the case of opening a new office, maintain some local operating control.
Not a good fit for: Advisors looking to remain fully in charge of operations since, to an extent, investment management and financial planning are standardized across the firm.
Playing the Match Game
Options are a great thing, but if a prospective seller is not strategic about who they engage, the exploration process can become a full-time endeavor. Put another way, without having real clarity on your own business goals, jumping into meeting with a multitude of acquirers will likely be a thankless task. This means that one must first align their goals with that of an acquirer’s business model.
So what must a principal gain clarity on? Consider these 6 questions to start with:
Depending upon the answers to the above questions, many acquirers can instantly be ruled out because their goals, business model, and organizational structure will simply be incongruent with yours. For example, if your primary objective is to offload compliance, but you want to maintain your investment process, then “roll-up” firms are likely not the best fit because these types of firms centralize all investment management decisions. On the flipside, if a principal wants to spend his days as an asset-gatherer and relationship manager, then they may find a roll-up firm to be just the right fit.
A merger or acquisition can benefit both parties involved, provided you can find a partner that is equally motivated and has compatible needs and goals. To get to that point, however, can be a winding road of countless meetings, which typically leads to more questions than answers. Alternatively, you can define a strategic path towards finding the right opportunity as defined here, and get focused on starting a new chapter for your firm.