Liquidity Factor Investing

Four Tips For RIAs Looking To Be Acquired

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Liquidity Factor Investing

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RIAs have entered a time of favorable growth – and they’re embracing the highs that come with it.

According to Echelon Partners, the merger and acquisitions consulting firm, the average RIA tripled its revenues between 2010 and 2017. Although this growth is strong, firms are facing intensified pressure to achieve even greater scale with long-term endurance. The result? Many are turning toward mergers or acquisition strategies to reach those goals.

The increased flow of outside capital makes it easier for firms to secure financing and hop into deals. Those opportunities are numerous and tempting, but partner break-ups, key client losses and other pitfalls can be costly.

To take advantage of the favorable market conditions, here are four tips to ensure a deal is teed up for long-lasting success:

  1. A successful business attracts buyers. Set your business up for success to get the deal you want!

The RIA business has evolved from being “investment-forward” to “planning-forward” to “experience-forward.” In a rapidly consolidating marketplace, advisory firms that offer a holistic, differentiated experience to clients will gain key competitive advantages.

Before entering a deal, assess what sets your business apart from similar firms. Are you focusing on a niche market or clientele? Are you offering something unique to make your firm the best choice for that niche target? For example, we are working with an RIA firm in Florida that focuses on wealthy clients who have a common interest: luxury travel. So, the firm hired a concierge to help their clients make those travel choices – adding that extra touch improves loyalty.

Another factor that will help increase your appeal to potential buyers is the longevity of your business. If the majority of your clients are nearing retirement and you are not investing the necessary resources to build a future pipeline, your business will not be viewed as being lucrative over the long-term.

  1. Clear goals make for clear outcomes

Be precise about what you want to achieve in a deal. Are you hoping to reach a critical market with your target clientele? Are you looking to increase capacity by acquiring talent? Do you need access to broader, or new, technology options? Or, are you in need of funds or resources to continue investing in the growth of the business?

For example, if you’re trying to improve scale to meet the demand your firm has created, look at firms that are good at attracting top-talent and have excess capacity. Even if those firms have excesses going into a deal – and therefore are less profitable than your target metrics – you should factor in the synergies that will be realized through a merger.

Frequently, we see financials take front-and-center stage in transactions. And financials are clearly important attributes in any deal. But calibrating your needs at the get-go will allow you to go beyond the numbers and envision how a partnership will play out in the long run.

  1. Culture counts

One of the less discussed aspects of M&A, culture, is one of the most critical factors for success in the long run.

Joining forces with a new firm may add much needed resources or bring access to new technology and infrastructure. But is it the right fit in the long run? Do you have the same or similar client approach? Do you treat employees similarly? Do you share the same values?

Read the full article by Gabriel Garcia, Advisor Perspectives


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