Financial advisors trying to make sense of
There has been
Those loose classifications represent a basic beginning point that may evolve as part of the necessary "constant learning experience" for selling RIAs during the deal-making process, the report's author,
"There's always going to come a time where you're deciding, 'What path am I going to take? Where do I want to find a home?'" she said. "You're going to be making the decision of, 'do I want to have a succession plan and sell eventually? Do I want to go the route of accelerating growth and joining another firm?' … Seeing where they are in different stages, you can say, 'OK, this is where I am, and this is what they're going through for their long-term strategy.'"
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A prospective acquirer's capital — whether from private equity, publicly traded stock, bank loans or other sources — offers another helpful method of grouping them, according to Allen Darby, CEO of RIA M&A advisory firm
The presence of a corporate development or M&A strategy team outside of an acquiring firm's CEO also displays "a really distinguishing" factor in terms of the scale of the potential buyer, he said. A section of the report noting that "investment bank-led deals are less attractive to firms as these proposals lead with the economics" and provide "limited ability to engage in the courting process that helps them uncover potential cultural misalignments" stood out to Darby.
"Buyers absolutely hate it" when the entire negotiation revolves around the size of the offer, and that approach of "purely using math" doesn't serve sellers well either, he said. Besides the valuation, selling advisors should consider how post-acquisition shares in the merged company will play out and especially whether their company's culture meshes with that of the acquirer.
"You can take a lower initial value but have a far better outcome if you find the best deal," Darby said. "If you define the best deal that way as opposed to just purely the initial evaluation, you're likely to pick a far different partner."
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At a general level, those possible partners could be:
- The "rookies" who "started a sustained campaign of acquisitions between 2021 and 2023" and are ramping up their M&A activity through "an influx of outside capital," according to the report. "Due to increased interest from private equity firms, the number of newcomers is steady and is filling in gaps where serial acquirers have backed away. These firms may still be in the process of building scale within their own firm, and some of their early acquisitions may be a means to acquire their way to certain capabilities that more established firms possess."
- The "veterans" that are seen as "serial acquirers" carrying out a clear "strategic plan to pursue inorganic growth," the report said. "At this stage, they have in-house corporate development teams that can source and analyze deals. They have established relationships with investment banks and recruiters and have a dedicated integration team. They are consistently acquiring more than one firm per year and are shifting toward a focus on geographic expansion, having already acquired a full suite of wealth management capabilities across individual and institutional segments."
- Or, the "strategists" that "are significantly larger in terms of revenue and have complementary financial services," according to the Datos report. "RIA acquisitions are motivated by a need to enhance their existing wealth management services or add them as a completely new service offering. For these reasons, we typically see these firms announce larger acquisitions and less frequently than the rookies and veterans."
Based on those descriptions and a sampling of deals over the past year or so, examples of the rookies would be firms like
And
With so much consolidation and frequent hand-wringing in the industry about firms' classifications and marketing images, those broad categories may not capture every subtlety within a giant company or the category that their executives argue best reflects their approach.
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The overarching groups could still help advisors understand how an acquirer's present phase in the growth cycle and most pressing issues may affect their individual deal. A group of 28 acquirers who spoke with Datos about their biggest challenges named the following areas: impact of regulatory change (61%); legacy technology constraining business transformation (57%); attracting high-quality technology talent (46%); retaining advisor talent (46%); market downturns eroding asset-based revenue (32%); diversification of revenue streams (21%); new competitors entering your market (14%); rising interest rates pushing clients to higher-yield cash products (11%); and downward fee pressure (11%).
"While firms are busy building scale through acquisitions, they still need to contend with broader industrywide challenges affecting their firms," the report said. "The top four challenges can be grouped as regulatory, technology and talent management. Though the impact of regulatory change was listed as the top concern, technology and talent management themes have been the ones most discussed within the RIA community."
For Asher, the report displays the first edition in a series of research on M&A, with the next upcoming one focusing on technology vendors. With so much emphasis in "all of these headlines, all of these articles about so much M&A" on the number of deals, their size and the most dominant players, the reports are trying to paint the bigger picture, she said.
"If you have been a part of an acquisition or merger on either side, you know that there's just so much more going on behind the scenes," she said. "There are no bystanders. Everyone has a role to play, and let's try to understand where everyone is coming from."
