Dealmaking momentum in the RIA space continues to build, and Echelon data reports it reached record levels in the third quarter of 2020 despite earlier pullbacks from the pandemic. Evolving client demands and quickly shifting technology and resource needs, coupled with outsized valuations and a lack of proper succession planning by independent advisors, have all driven activity in the space, and this activity is on track to continue.
From the acquirer’s perspective, M&A can be a fast-track to growth, with many advisors looking to onboard entire books of business and quickly multiply AUM numbers. Yet, acting as an RIA buyer isn’t right for everyone.
Having the right approach to M&A is vital to short- and long-term success. At GVA, we support our advisors in growing organically and inorganically and play a significant role in advancing and supporting dealmaking activities within the network. We know the best practices because we’ve sat in your seat before too. Jumping into the M&A space requires a tested strategy and the right support to be successful. Here’s what aspiring buyers need to know.
Leveling the Playing Field in a Seller’s Market
The steady rise in buying activity is making for a very crowded marketplace, so it is important that serious acquirers position themselves to stand out among a sea of buyers.
Long before you engage in conversations with prospective acquisition partners, you must invest time on the back end, securing a strong financing partner and banking relationships to ensure you have the capital to buy when the right fit emerges.
Once the financing is shored up, it’s time to look the part. This means assessing your public-facing assets and image, from your website to your office space and your current team. Do these assets send the message you want and position you as a leader in the industry? If not, spend time cleaning these up before entering the M&A market. You can also be reactive with these assets. If an acquisition target is asking about specific offerings or resources that are not already featured on your site and supporting materials, it is a good chance to update your assets and better position yourself for future partners.
Identifying the Right Partner to Fuel Your Growth
Finding the right acquisition partner requires a significant time investment. Often the best-suited transactions take time — sometimes even several years — to materialize. As you look to grow, the focus must be on enhancing the practice you have built. While it can be tempting to move on all of the targets you meet, it is essential to find the right partner. This perfect “fit” will lay the foundation for a successful relationship in the long term.
There are three things advisors should keep top of mind when seeking an acquisition partner:
- Geography – One of the biggest value-adds advisors bring to the table is an intimate knowledge of the community they serve. As advisors seek partners, it can be tempting to look beyond your immediate area, but this can prove to be a significant stumbling block. It is important to have access to be able to meet with your clients in person. Closer is better, but areas extending beyond a two-hour drive are likely too far.
- Culture – The culture you create in your firm is hallmark to your offering, so it’s important that acquisition partners share a similar philosophy. Aligning a practice after acquisition requires much effort on the administrative and operational end, so when the firms’ joint culture is already complementary, it can alleviate an extra burden.
- Size and scope – It can be tempting to eye a larger purchase to propel growth, but buying a much larger firm can lead to issues as you navigate the transition period and assume the book of business. One of the most common missteps we see is overleveraging. In today’s environment, outsized valuations are common, and advisors can market a practice for much more than its actual value. It is not worth taking on significant debt for a firm that is not valued appropriately.
Preparing to Onboard
Handling the transaction is a relatively small feat when compared to the task of onboarding a new book of business. The onboarding process is a time and financial investment, requiring the help of internal and external partners to be successful.
The financial aspects should be accounted for early in the process, particularly if you need to add staff to assist with new business. You should also spend time preparing your current staff for the transition and ensure they can handle the new workflow. The seller will continue to monitor the process and want to see their clients well-cared-for and in the best hands. If your team is overwhelmed by the new work, it will strain the onboarding process and relationship with the seller.
A Partner You Can Trust
When you are acquiring a firm, you can’t go at it alone. You will likely need to tap outside resources and partners, including your custodian, third-party money managers, technology providers and other partners. GVA’s mission is to empower our advisors’ growth, both organically and inorganically. We strive to be a partner our advisors can trust to advance their practice and position them for success.
As more M&A opportunities present themselves, we are here to help our advisors navigate the process. The M&A process is multifaceted and we provide comprehensive support, including:
- We help in identifying potential targets — specifically advisors in our network who have indicated an appetite for acquisitions — or properly vet potential acquisition targets our advisors have sourced on their own. GVA includes a strong network of advisors who are growth-oriented and several are well-positioned as industry leaders and are ready to onboard new teams. We recently added a new Real Estate page to our website, highlighting these firms where there is opportunity to grow.
- As targets are identified, we perform extensive due diligence to determine appropriateness of fit, factoring in geography, culture, service suites and valuations. M&A transactions are often emotionally charged, so we offer a third-party perspective on the in’s and out’s of the deal to ensure it aligns with our advisors’ goals.
- All acquisitions completed within the GVA network are routed through our RIA, so we offer assistance on the tactical end of the deal, with support for onboarding, legal and compliance issues and the financing structure. We look at the transition in the immediate term, but also take the long-term view, projecting what needs to be completed to maintain the successful transition in years to come.
The M&A process can be an exciting opportunity to grow, particularly if you have designed a strategic approach and aligned with the right support to navigate the process. For more insight on the M&A process and opportunities for advisors within our network, schedule a call with us. Connect with us on LinkedIn, Twitter and Facebook for our latest insights and team updates.