Our US correspondent dives into the details of a large M&A deal in the North American wealth management industry, examining the forces leading up to it, what the implications are, and more. More incisive analysis from the FWR team.

The combination of The Colony Group and Buckingham Strategic Wealth into a $115 billion behemoth with over 20,000 clients and more than 90 offices around the country may not technically be a mega-merger, since both firms are Focus Financial Partners affiliates, but it sure comes close.

Even more critically, the move appears to validate private equity firm Clayton, Dublier & Rice's (CD&R) – Focus’ majority owners – strategy of buying out management teams and integrating its partner RIAs into large hubs to increase scale, profitability, value and market dominance.

CD&R’s strategy, which has resulted in Focus now directly controlling more than $150 billion in assets, certainly moves Focus way up on the RIA leader board, ahead of M&A rivals Hightower Advisors, Mercer Advisors, Mariner Wealth Advisors, Cerity Partners, Beacon Pointe Advisors, Creative Planning and Wealth Enhancement Group.

While integrating the two large firms will be “a huge challenge,” said Savant Wealth Management CEO Brent Brodeski, “their opportunity is huge if they play their cards right.”

Co-captains 
Buckingham chief executive officer Adam Birenbaum will serve as the combined company’s new chief executive, and Michael Nathanson, currently CEO of Colony and Focus, will shift to serve solely as CEO of Focus. The merged firms are expected to operate under a single new brand name later in the year.

Having the two highly respected RIA veterans at the helm of the revamped entities drew praise from industry observers.

Nathanson and Birenbaum “are both savvy executives and long-time colleagues,” said Chip Roame, managing partner at Tiburon Strategic Advisors. “With Michael’s ascension at Focus, Adam leading his team is the perfect outcome.” The two executives “have a rare mix of strategic thinking and focus on tactical process,” according to David DeVoe, principal of San Francisco-based M&A firm DeVoe & Co. “Adam's experience integrating tens of firms into Buckingham will be a key asset.”

PE pivot
After acquiring a majority stake in Focus in mid-2023, CD&R began its strategy of consolidating Focus’ 90 partner firms by buying out management stakes of the company’s largest affiliates and making them “hub” centers which would in turn fold in smaller firms.

Hub firms to date include the new Colony/Buckingham combination, SCS Financial and Kovitz Investment Group, whose combined assets total approximately $150 billion. Total assets for the remaining firms total around $250 billion.

Pivoting from a financial buyer model to an integrator model marks a “significant shift” for Focus, said Allen Darby, CEO of Alaris Acquisitions, an M&A consultancy specializing in RIA sellers. 

“It underscores the undeniable truth that the real return on investment hinges on a buyer's ability to integrate and elevate business performance successfully post-acquisition," Darby said.

Will the combo boost multiple?
But CD&R is also playing the multiple arbitrage game.

The private equity firm wants the combined firms to meaningfully increase the valuation multiple but, because Colony and Buckingham are so large individually, combining “does little to increase their valuation multiples,” according to Dan Seivert, CEO of M&A specialists ECHELON Partners. What’s key, Seivert explained, “is the adjusted multiple [CD&R] paid for the company versus what this combination will yield.”

The Colony/Buckingham blockbuster may also spark a much anticipated realignment of top firms. “I expect this to be the first of many ‘consolidations of consolidators!’” Roame said.

And just how much can combining two high-powered RIAs create in the way of synergies in terms of compensation and non-compensation expenses? “We would estimate that to be about 4 per cent to 8 per cent of revenues of the combined firm,” said Seivert. 

Operationally, “it will be interesting to see if melding the firms to a single mega-RIA provides them a platform and alternative capital structure that allows them to accelerate growth and become a force within the industry,” said Brodeski.  

Time will tell.