RIA Feeding Frenzy Moves Downmarket
Louis Diamond Quoted
By David Sterman
Has the RIA industry been overfished? A rapid spate of deal-making has seen giant firms gobble up other large prey, leaving the industry with more whales and fewer minnows.
Rather than go hungry, the predators are now snapping up smaller prey. A recent report from TD Ameritrade found that 58% of all industry deals in the first half of 2019 were focused on firms that manage between $100 million and $500 million in assets.
“In no previous year has this size range accounted for more than half of deal activity,” noted the authors of the report.
The stepped-up pace of M&A deal-making for smaller to mid-sized firms is the rare confluence of aligned interests. Buyers are ready to spend as they bulk up their base of advisors and clients to achieve scale economies.
And there’s surely no shortage of motivated sellers. And many share a common trait: a lack of succession plans.
Louis Diamond, executive vice president at industry recruiter Diamond Consultants suggests aging advisors need not fear a mass simultaneous rush to the exits that floods the markets with practices for sale.
“There is a perceived oversupply (of planning practices) for sale, but we see a lot more buyers than sellers,” he says.
Funding a transaction also requires careful planning. Diamond says that sellers often require 50%-60% down at closing, with the remainder paid out within a few years. Part of the subsequent payment may be tied to an earn-out for sustaining cash flow or revenue targets.