A firm involved in a significant wealth sector M&A deal talks about its move and about the wider mergers and acquisitions environment for a sector that has seen a lot of transactions in recent years.

Park Sutton Advisors, a prominent RIA investment bank focused on M&A, is being acquired by Waller Helms Advisor, a Chicago-based investment bank specializing in the insurance, healthcare and fintech businesses.

Founded in 2008 by Steve Levitt, Park Sutton completed 25 wealth management transactions last year. Despite the recent stock market retreat, Park Sutton is on track to equal that number this year in an M&A market for wealth management firms that remains “very active,” according to Levitt.

Park Sutton will continue doing RIA M&A deals under its own name for around two years before folding into the Waller Helms banner. “This is a terrific strategic fit,” Levitt told Family Wealth Report. “It’s a nice way for us to diversify, we have really great chemistry with this group and it’s really important to have scale.”

The administrative demands of growing the business were cutting into his time with clients, Levitt added. “We morphed from a practice to a business with 18 employees and to take it to 30 is not what I wanted to do. I’m following my own advice to clients: do something before you really need to.”

Signs of a slowdown?
Earlier this month, Kurt MacAlpine, CEO of CI Financial, the industry’s most prolific dealmaker over the last two years, said the Canadian firm had “absolutely slowed down” the pace of acquisitions this year.

“We suspect that other serial acquirers will follow a similar path, particularly in light of rising interest rates and declining fundaments for existing firms,” Zachary Milam, senior financial analyst for RIA valuations firm Mercer Capital wrote in a recent blog post.

But Levitt insisted that Park Sutton “is not seeing less interest [in financial advisory firms] or valuations go down. It’s still a seller’s market and a tremendous market for top properties.”

While the market decline and rising interest rates have created “a bit of angst” in the M&A market, Levitt said the fundamentals driving interest in RIAs remain strong.

Interest remains
“It’s still an attractive space,” Levitt said. “There’s recurring cash flows, a need for financial planning and investment management as people age and it’s a business where revenues can go up with the market even if a company doesn’t add new clients.”

In addition, private equity capital remains abundant and “needs to be put to work,” Levitt noted, while new entrants such as insurance companies keep coming into the market, increasing competition and pushing up demand for a limited number of buyers.

Even smaller RIAs are benefiting, Levitt said. Park Sutton is representing two RIAs with around $300 million in assets under management and each firm has drawn at least 15 offers, according to Levitt. “There are still bidding wars,” he said.

To be sure, “there are no guarantees,” Levitt cautioned, conceding that a prolonged market decline could “spook” the M&A market. 

But even quality firms which may not have considered a sale before the boom of the past several years may not be able to complete internal transactions, Levitt argued, because of the disparity between the high multiples the firm may command and what junior executives are able to pay.

A recession could bring valuations down for firms that “don’t meet quality criteria,” Levitt said. Nonetheless, there remain “a lot of deals yet to come,” he predicted.