Effectively Evaluating RIA M&A Opportunities

April 26, 2022 Oak Street Funding

evaluating ria m&a

As featured in The Bridge: Spring 2022 edition.According to Devoe, RIA mergers and acquisitions set new records in 2021 for the eighth consecutive year and 2022 is on track to be another record-setting year. There are several factors behind that strength. One of the biggest is the sheer number of investment professionals who are making the transition to retirement. This disruption of the RIA industry provides lots of opportunities for mergers and acquisitions.

The best RIA firm mergers and acquisitions provide the proverbial win-win for everyone involved. Because there are so many M&A opportunities, it is vital to carefully evaluate opportunities to make sure they are right for your firm. The first opportunity may not be the best fit. If you’re currently contemplating a merger or acquisition or believe a transaction may be in your firm’s foreseeable future, it’s wise to evaluate the factors that lead to success … or disappointment.

Know thyself

Before you can begin to identify and evaluate targets for a merger or acquisition, you need a clear sense of your objectives and business values. It may add a little time but developing a written plan that’s similar to a business plan can help you identify your objectives, factors to consider, and what you see as non-negotiable items. Can you articulate your company’s culture and what you define as success? Planning this way will make it easier for you to evaluate and narrow potential targets.

Culture matters

Once you’ve determined the types of firms that would be a good fit, evaluate each opportunity against those factors. Don’t dismiss the importance of business culture, because buying a firm with an incompatible culture can be a recipe for disaster. If you plan to combine the operations of both firms into a single office, you’ll want to be sure the people will be compatible, too.

Consider valuation

Another critical element in successful transactions is how the deal is valued. If you’re the acquirer, you obviously want to pay as little as possible, while sellers are eager to maximize the value of their firms. The best approach may be to agree to have an independent third party develop the valuation that will be used. Professional appraisers generally use a combination of methods that focus on market multiples of revenue, assets under management, and cash flow. Even though valuations are higher than they’ve ever been, the range of valuations is wider than it’s ever been. A lot depends on the capabilities of both the buyer and seller. Firms with aggressive growth and profits are typically valued higher than firms with steady growth. While these stable firms may not appeal to the buyers that drive up valuations, they have a lot to offer other stable firms who are looking to expand their talent or client offerings.

Find partners

Finally, you want to have your team in place. After all, you don't want to miss out on a great acquisition because you had to hunt for an attorney or capital when another bidder was ready. Line up your legal and financial team before you begin looking for an acquisition or merger. If you are considering your first deal, considering hiring a consultant to guide you through the process.


Disclaimer: Please note, Oak Street Funding does not provide legal or tax advice. This blog is for informational purposes only. It is not a statement of fact or recommendation, does not constitute an offer for a loan, professional or legal or tax advice or legal opinion and should not be used as a substitute for obtaining valuation services or professional, legal or tax advice.

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