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Portfolio > Alternative Investments > Real Estate

Good Time to Be a Seller, Sort Of

By James J. Green

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It’s a good time to be a seller of an RIA firm, at least a certain kind of RIA firm, according to the latest definitive research on mergers and acquisitions activity in the advisory market, though there has been a slowdown so far in 2008 on completed deals.

Those are some of the takeaways from Real Deals 2008, the research conducted by Moss Adams LLC on behalf of Pershing that takes up where its 2006 study on the same topic left off. Summing up the study, the number of completed deals reached 58 in 2007, exactly double the number reported in 2003. However, through April 2008, only seven deals occurred.

Multiples seem to be increasing slightly as well. The typical valuation in terms of multiple of earnings for the average 35 firms per year in Real Deals 2006 was 2.75 to 3.0, while the typical valuation for the average 48 firms in Real Deals 20087 was 2.75 to 3.5 times revenue (Real Deals 2006 covered 2000 through 2005; Real Deals 2008 covered 2006 through 2007).

Mark Tibergien, CEO of Pershing Advisor Solutions and the former Moss Adams partner, provided some insights into the study in an interview, noting that “It’s a good time to be a seller if you have a good business. It’s a bad time to be a seller if you haven’t invested in your business and lack growth and earnings potential.”

Tibergien worries, however, about “quite a few” advisors who “have not taken the steps to build value over the past few years who may be burned out or bored,” and look at the attractive current marketplace for RIA firms as an opportunity simply “to get out.” He warns that the value for such firms “will not be as great as those who have positioned themselves well for growth.”

Tibergien points out that the slight increase in multiples may well reflect acquisitions of some “pretty high-quality firms where people are willing to pay a premium,” particularly if the acquirer believes there is some synergy involved.

That brings up another change in the M&A market place. In the earlier study, banks were the most active acquirers. More recently, the most active are what Moss Adams calls “serial buyers,” financially motivated firms such as National Financial Partners, Focus Financial, United Capital, and Mesa Holdings, which acquire a number of firms over time, often using stock in the acquiring firm (which may well go public some day) to pay for a good chunk of the acquired firm.

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