At a time when merger & acquisition (M&A) activities have waned significantly in corporate America, the advisory world has been witnessing a strong M&A trend during the last few years. At the foundation of this trend, buyers seem to be looking for more than just growth or penetrating new markets. Anecdotal evidence suggests that many large RIA firms are employing acquisition strategies as a substitute for their marketing efforts. For the smaller firms, joining forces with other professionals through mergers seems be the best way to deal with the incessant competition from wirehouses and other financial services firms. On the other hand, sellers in this market aren’t quitting out of despair, but rather cashing out in what is a seller’s market.
M&A in Action
In the latest follow-up survey of 378 RIA firms conducted between January and March 2003, AdvisorBenchmarking.com examined advisors’ plans for M&A activities this year. The findings revealed an increased interest in buying or merging with other advisors and professionals, as chart 1: Planned M&A Activities shows below.
Source: AdvisorBenchmarking.com, March 2003
* AdvisorBenchmarking.com’s surveys are aimed at pure-RIA firms only, and thus, no institutional M&A activities in the RIA market are reflected in the numbers above.
What Your Peers Are Reading
The Numbers Behind the Trend
Looking closer at the profiles of the three groups represented above (buyers, sellers, and merging firms), a telling picture is revealed, highlighting the impetus for each of these M&A activities. (See chart 2: Financial Profile of Firms Involved in M&A Activities below.)
Source: AdvisorBenchmarking.com, March 2003.
**All figures reflect 2002 year-end financial statements.
As chart 2 above shows, the average buyer in this market is a fairly big RIA firm with over $100 million in assets, compared to merging firms with $24 million and sellers with $50 million. Clearly, larger firms are more likely to have the needed capital to finance an acquisition, the strategic intent to grow through acquisitions, and the solid infrastructure to integrate the acquired firm into its business. Equally notable, firms seeking to merge are much smaller in size ($24 million AUM), as they are less likely to hold their own in the marketplace.