Is the frothy seller’s market for RIAs running out of steam?
Veteran dealmaker Peter Raimondi just acquired a tax practice for his latest wealth management firm and hopes to purchase at least two RIAs by the end of the year. And he says there’s a good chance he won’t have to pay as much as he would have last year.
“If a firm was worth eight times EBITDA last summer and we’re looking into a recession am I still going to pay that multiple this year? Absolutely not,” says the CEO of Dakota Wealth Management, which bought the tax and advisory practice of GML Associates, a Boston-based law firm.
If the market tumble of the last month continues and turns into a bona fide bear market or sparks a recession, RIA buyers will be back in the driver’s seat after years of a seller’s market for advisory firms, Raimondi says.
A down market that torpedoes an RIA’s AUM and reduces its revenues by 20% can have a “pretty dramatic” impact on a firm’s valuation, he explains. A firm with a 30% gross margin could see that sliced to 12%, Raimondi says. If the RIA’s revenues decline 30%, nearly all its profits could be wiped out, according to Raimondi.
“The last 10 years have been very good for RIAs, but I think it papered over a lot of problems,” says Raimondi.
“The last 10 years have been very good for RIAs, but I think it papered over a lot of problems, such as bloated payrolls,” Raimondi says. He points to the steep decline in Focus Financial’s stock price as an indicator of what could be ahead for RIA valuations.
To be sure, Raimondi’s scenario benefits buyers such as himself. But he also been a seller, and is one of the industry’s most experienced dealmakers.
Raimondi founded the Colony Group in Boston, now one of Focus Financial’s leading partner firms. In 2006 he started Banyan Partners and sold it to Boston Private eight years later for a reported $60 million in cash and stock. Last year he launched Dakota Wealth Management and in less than eight month has made three acquisitions, bringing the RIA’s AUM to over $700 million.
The estate planning and tax needs of Dakota’s wealthy clients spurred the purchase of GML, Raimondi says.
Raimondi and Dakota executive John DeSimone, both lawyers, will join GML, which will continue to exist as a separate law firm specializing in estate planning. But the firm’s tax practice, headed by GML founder Gary Locarno and Katelyn Ainsworth, will now be absorbed within Dakota.
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After his big score with Banyan Partners four years ago, the dealmaker faces a much more competitive market.
May 15 -
After a stormy tenure at the bank, the former Colony and Banyan head goes back to the acquisitions arena.
September 13 -
Why should a really good smaller firm thats growing have a lower multiple than a big firm thats crappy? asks Peter Raimondi, president of Boston Private Wealth.
September 21
Not having a wealth advisory practice was a “deficiency” of GML, Locarno says. In addition, he was unhappy when he referred wealth management business to outside advisory firms.
“It was difficult to keep my pulse on what they were actually doing on a timely basis,” he says.
Raimondi says Dakota wants to expand outside its current New England and Florida footprint, preferably in the New York area and the mid-Atlantic.
Dakota typically offers RIAs a 50/50 cash and equity deal but “the seller can dial those numbers up or down,” Raimondi says.
Terms of the GML deal were not disclosed.
