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Experts discuss how RIA firms can best position themselves for M&A deals

Registered investment advisor firms need to consider a range of factors before pursuing merger-and-acquisition deals, experts said at BNY Mellon Pershing INSITE 2019.

3 min read



Charles Tomlinson

The rising prominence of mergers and acquisitions involving registered investment advisor firms highlights factors that potential buyers and sellers should consider before pursuing a deal, a panel of experts said Wednesday at BNY Mellon Pershing INSITE 2019, in Phoenix.

M&A deal volume among RIAs has been on an upward trend that has broken records over the past seven years, according to Echelon Partners.

Although the panel focused on the valuation of firms involved in M&A transactions, Dakota Wealth Management founder and CEO Peter Raimondi said the most vital factor in deciding whether to make an acquisition is a cultural one.

“The most important thing we look at — and I truly mean this — is, ‘Do we like the people?’ … They’re going to move into your house. … They’re going to disrupt or impact your culture. You want that to be positive and not negative,” he said.

He also had advice for firms who are considering seeking a buyer: “If you’re not ready to cede control of your firm, you’re not ready to sell it.”

The panelists outlined steps for firms to take to ensure that they are “M&A ready” before seeking a deal. Shirl Penney, president, founder and CEO of Dynasty Financial Partners, said his advice to firms thinking about leveraging capital for such a deal is that “the sooner you can start educating yourself, the better.”

Firms also need a well-written plan that outlines the firm’s goals in areas including margins and talent, and those goals should be based on when the business reaches different revenue points, not after an arbitrary amount of time has passed, Penney said.

Also important is harnessing the expertise of highly knowledgeable bankers, tax consultants and lawyers, he said.

Raimondi said that even the cleanliness of an office can make or break a sale, because an unclean space raises the question of how a firm treats clients and how it would represent the acquiring firm.

“You have to roll out your best self, and I think a lot of firms are not ready for that,” he said.

Daniel Seivert, managing partner, CEO and founder of Echelon Partners, said succession-oriented transactions benefit from the involvement of a third party that knows valuation and deal structuring and can offer a leadership position.

Sellers face a big question in determining whether to seek an internal or external transaction — or whether they should sell when they weren’t necessarily looking to, but another firm is offering to buy.

Seivert said the proportion of deals made internally had been about 60%, although that percentage is declining, and external transactions are often the only option as firms are becoming larger.

Raimondi also discussed spreading equity among an RIA firm’s employees who have helped contribute to the business’ success. “It still surprises me that RIA founders are holding onto equity with hands that should be loosened up,” he said.