Mid-size RIAs — those with assets roughly between about $300 million and slightly over $1 billion — are the current M&A sweet spot.
Firms these size are fueling the continuing strong M&A market for advisory firms, and two new acquisitions by Captrust Financial Advisors underscore the trend.
Captrust is buying McQueen, Ball & Associates, based in Bethlehem, Pennsylvania, which has $1.3 billion in AUM and Green, Ohio-based Cornerstone Capital Advisors, which has $770 million in assets.
A shifting RIA landscape towards very large national firms and smaller local practices leaves mid-size firms like Cornerstone vulnerable, according to Mario Giganti, the firm’s president.
“We needed to strengthen our size, scale, client acquisition and staff development,” Giganti says. “We hoped to double in size over the next five to seven years but had to decide if we had the infrastructure in place to do it ourselves, which would mean spending less time with clients. It’s a huge question for firms our size.”
While Cornerstone had other suitors, the RIA decided it wanted to partner with a large firm like Raleigh, North Carolina-based Captrust, whose RIAs now have approximately $10 billion in retail AUM according to the most recent Form ADV filed with the SEC. Captrust also oversees around $280 billion in institutional assets, mostly from pension and profit sharing plans.
"We needed to step up to the next level," says McQueen, Ball President Jerry McQueen.
“A merger didn’t make sense unless it created substantial operational efficiencies,” Giganti says.
Jerry McQueen, founder and president of McQueen, Ball, agreed.
Firms without the resources to purchase the latest technology are at “a competitive disadvantage,” McQueen says. “We needed to step up to the next level.”
While McQueen also received other offers, merging with a local bank or a similar-sized RIA wouldn’t solve his firm’s issues, he says. “We knew the people at Captrust and their culture,” he explained. “And joining a large company with the resources that we needed appealed to us.”
That logic has also benefited other large acquirers. Mariner Wealth Advisors has already completed seven transactions this year, with the AUMs of acquired firms ranging from $110 million to $1.3 billion. Mercer Advisors has made four transactions to date, most recently buying Jackson Financial Management in Costa Mesa, California, which has $510 million in AUM.
Captrust's "talent grab" appeals to RIA sellers, says Wilson Hoyle, head of the company's advisor group.
Captrust has made three transactions so far this year, continuing the firm’s steady growth that has made it one of the leading RIA acquirers in an extremely competitive market over the past several years.
Captrust offers cash and equity deals and targets established wealth management firms in markets where it already has established its institutional 401(k) business, says Wilson Hoyle, head of the company’s advisor group.
“It’s all about fit,” Hoyle says. “We look for firms that want to grow.”
In addition to an affiliation with its retirement business, Captrust also offers potential sellers access to additional personnel. This “talent grab,” in an industry facing an advisor shortage, helps Captrust appeal to sellers who are looking for organic growth, according to Hoyle.
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One of Captrust’s key strengths in the M&A market, says Dan Seivert, CEO of Echelon Partners, is its ability to aggregate acquired firms into four business models: mass market, high net worth, smaller qualified plans for corporations, pension consulting for larger companies, and endowments and foundations.
Captrust also has “a strong capability in manager selection and asset allocation which they can leverage across all the markets they serve,” Seivert says.
However, as Captrust has grown, it becomes “more difficult to grow and manage the organization when you are larger,” he notes. “The different markets they serve each have their own dynamics and require thoughtful strategies to attain success and growth.”
Echelon, which will host its annual M&A “Deals & Deal Makers” conference in Newport Beach, California in September, reported a record first quarter for RIA deals. The second quarter “looks to be strong as well,” Seivert says. “Deal pipelines suggest that it should be a record year if the Dow stays above 24,000.”
