This news service recently caught up with RIAs and others in the wealth sector to hear about their views on mergers, acquisitions, and the corporate changes going on against a backdrop of rising rates.

RIA sellers are becoming more discerning.

“More sellers are dating longer before committing to a deal,” said Brandon Kawal, principal of the consultancy firm Growth Advisor Strategies, speaking at a panel on “Key Considerations for M&A and RIA Growth” in New York City yesterday. 

Sellers have sharpened their ideal buyer profile, according to Marc Cabezas, executive director for M&A at Hightower Advisors, and negotiations between the aggregator and potential sellers before a Letter of Intent is signed are now taking longer. 

As valuations continue to remain at “attractive levels,” sellers are also spending more time evaluating what other benefits buyers are bringing to the table, said Raj Bhattacharyya, CEO of Robertson Stephens.

Sellers are now “more educated” than ever before about the market and doing more due diligence on buyers, executives on the panel, presented by the communications firm JConnelly, agreed.

NextGen needs now on the table
Another shift in sellers' behavior has been an emphasis on the needs of NextGen advisors in the firm, according to Kawal. 

“Especially when there’s so much demand for talent,” Kawal said. “The deal terms aren’t just about what’s in it for the founders anymore. The needs of NextGen advisors are playing a much more prominent role.”

And the principals of selling firms are looking at deals with a much longer time horizon, executives on the panel said. “We’re seeing more pro-active deals with long-term operating issues in mind, as opposed to a one to three-year time frame for succession.”

Buyers side
While RIA M&A remains a seller’s market, buyers’ negotiating positions have strengthened in the past year.

“Valuations have leveled off, upfront payments are less and there’s more risk sharing as reflected in longer earn-outs and contingency terms,” Kawal said.

There’s also less competition and pressure to bid up prices to win deals. “In the past, you’d see 15 buyers pursuing a seller,” Kawal said. “Now there’s five, six or seven.”