After the half-way point of 2024, our US correspondent looks at the M&A arena to see who has achieved the most deals, made the biggest impact, and what the stories tell us about where wealth management is headed.

Who was the Biggest Winner?

Focus Financial, hands down.

Focus jolted the industry in May when its two largest affiliates, The Colony Group and Buckingham Strategic Wealth merged into a $115 billion RIA with over 20,000 clients and more than 90 offices around the country.

What’s more, less than a year after taking Focus out of the public markets, new private equity owner Clayton, Dublier & Rice reorganized what was essentially a holding company into an integrated RIA powerhouse managing over $150 billion in assets guided by two of industry’s brightest stars – Michael Nathanson and Adam Birenbaum.

To date, Focus’ new “hub” strategy of merging big partner firms has resulted in the consolidation of Kovitz Investment Group and SCS Financial, which in turn is absorbing smaller partner firms, as is Colony-Buckingham (which will soon have a new brand identity). Colony  just  acquired Atlanta-based $3.8 billion Gratus Capital, a fellow Focus partner firm. Centralized and well capitalized, the new and improved Focus is expected to be a  dominant buyer over the next two years.

“I love this,” said Matt Cooper, president of Beacon Pointe Advisors. “CD&R will hit an absolute home run. Creating a real critical mass with a few larger platforms by rolling up the smaller non-hub firms is genius. Each of these hubs could be sold to cover a material portion of CD&R’s original investment. The rest is gravy.”

What about the other big buyers?
Wealth Enhancement Group had an impressive first half, making eight acquisitions to date as the most active buyer, steadily adding to its AuM total, which has now pushed past $85 billion. ECHELON Partners CEO Dan Seivert noted that WEG is the only RIA that has appeared consistently in the top ten buyer rankings in 2022, 2023 and 2024 year-to-date. There’s simply more competition, Seivert said. Besides WEG, only Mercer Advisors and Waverly Advisors are among the top ten acquirers in 2023 and the first six months of 2024.

Allworth Financial and MAI Capital Management have also been quite active this year, with five acquisitions each. Mercer Advisors, which is usually at or near the top of the leader board, made just three purchases year-to-date. 

Hightower Advisors, another reliably active buyer, made one deal early in January, investing in the $3.3 billon wealth management firm Capital Management Group of New York, but has been missing in action ever since, perhaps hunkering down and reassessing its strategy after a reported move by Thomas  H Lee Partners to sell its majority stake in Hightower stalled out. 

Was the Fisher deal an outlier or not?
One of the biggest deals of the first six months was Fisher Investments agreeing to sell a minority stake to private equity firm Advent International and the Abu Dhabi Investment Authority in a deal that values the wealth manager at $12.75 billion with a reported multiple of over 20 times EBITDA.

The numbers are certainly impressive, as is Fisher’s AuM, a staggering $275 billion. Arguably, however, Fisher is sui generis, a one of a kind marketing machine that spends millions of dollars on print, TV and Internet advertising and millions more on direct marketing at levels no other RIA comes anywhere near.

“Fisher is an outlier,” according to John Furey, founder of Advisor Growth Strategies. “I don’t think it’s really a comparable in the RIA market.” The Fisher deal will “have no impact on the RIA market,” said Allan Darby. “They are two totally different businesses.”

Not so fast, argued Chip Roame, managing partner of Tiburon Strategic Advisors. The Fisher valuation “has created one of the high watermarks for large fee-based RIA acquisitions and will be referred to often by sellers, although buyers might disagree,” he said.

“I don’t think Fisher is an outlier,” said Steven Levitt, senior managing director of Park Sutton Advisors. “A lot of the big wealth platforms are receiving multiples of 20 to 25 times EBITDA from financial sponsors.” 

What’s the most important metric for buyers right now?
“Buyers are highly interested in the seller’s current organic growth rate,” said Laura Delaney, vice president, practice management and consulting for Fidelity Investments. Also critical, Delaney adds: “What the potential organic growth rate could be once the seller joins and has access to the combined firm’s talent and resources.”

Net new asset flows.

“We have seen sellers with low – 1 to 2 per cent – or negative net new asset flows flows be outright rejected for consideration,” said Allen Darby, CEO of Alaris Acquisitions.

What are the most important trends in M&A right now?
After nearly a decade, private equity interest in RIAs isn’t exactly a trend, but it is increasing. According to Fidelity’s Delany, private equity was behind an astonishing 96 per cent of RIA transactions in the second quarter and 76 per cent of minority staked investments in the first six months of the year. That’s a lot!

Investment banker Levitt, who is in the trenches fielding calls every day, confirmed the trend. Park Sutton counts “over 40” equity-backed serial aggregators. “These are high quality groups and the competition is fierce for the best properties,” Levitt said.

What’s happening with deal terms?
“Upfront payments are still robust (60 per cent plus of deal consideration), but buyers are not willing to give you a ‘no risk,’ transaction.” – Brandon Kawal, Advisor Growth Strategies.

“Most deals include stock. Many deals involve retention payment and growth payments.” – Levitt, Park Sutton Advisors

“Typically 60 per cent to 70 per cent consideration paid upfront; 10 to 20 per cent retention; remaining in an earn out.” – David DeVoe

“The composition of base consideration versus earn outs, particularly growth incentives, now a standard element in industry deals. The length of time and level of hurdles for the growth incentives is very important. 

“Also, whether or not they include market upside/downside. Too low of a hurdle and too long to accomplish, gives away much or all of the accretion in the deals.” – Cooper, Beacon Pointe Advisors

How are valuations holding up?
“Valuations have remained high and stable for several years now,” according to DeVoe. “The private equity backed ‘meta’ RIAs are paying the highest valuations.” Levitt said “a lot of our sellers are receiving very attractive deal terms now in the 15 to 20 times EBITDA multiple range.”

Overall industry average for multiples was around 10 times EBITDA last year, according to research by Advisor Growth Strategies and “demand remains elevated this year,” Kawal said.

Multiple range for RIAs under $500 million AUM  are rising, and now range from approximately 8 to 11 times EBITDA, according to Kawal.

RIAs with between $500 million and $3 billion in assets appear to command an estimated valuation of approximately 10 to 15 times EBITDA, while multiples for advisory firms with $3 to $5 billion to $20 billion AUM can reach the high teens. Fast growing wealth managers with over $20 billion in assets should see valuations in the low 20s and possibly higher, depending on size and quality.