5 Trends Driving Record M&A Activity for RIAs: Dan Seivert

“Live Oak would cap out at $5 million,” he said, and also requires “owners to be out within one year” after a sale, which Seivert said was a Small Business Administration guideline. (Contacted about its loan terms, Jason Carroll of Live Oak said that while its SBA 7A loan program has a $5 million cap, since Live Oak went public in 2015 it has the ability to, in some cases, make loans larger than that amount using the bank’s own capital. As for the SBA requirement on owners departing one year after selling, Carroll clarified that the SBA requires sellers to be removed from playing a “key person” role at the firm within a year but can serve as a consultant or referral source to the firm, or even an at-will employee, which he said often “alleviates and smooths the transition to new ownership.”)

Other common loan terms have changed as well, Seivert reported. Previously, lenders would set a seven-year term for their loans, while others “wouldn’t allow prepayments.” Now, some lenders are “doing 10-15 year” loan terms. In addition, “interest rates are quite attractive” now for advisor M&A loans, often just “200-400 bps over LIBOR; so 6% to 8%.” In sum, he said, there is “more diversity of deal terms.” 

2) Increased Number of Peer-to-Peer Deals
This driver is a reflection, Seivert says, of more communication among advisors, whether at industry conferences, on social media such as LinkedIn or in study groups. These days, he says, “there’s more like 2 degrees of separation” between advisors who might share the same custodian, who might be a [Dimensional Fund Advisors] lover” or have the “same orientation toward growth” or where both “hate alts.” That allows advisors pondering a deal to “sniff around each other,” leading to “some preselection,” which facilitates more transactions, often of a friendly nature.

3) Market Cycle Timing 
“We’re in the third-longest expansion in history,” Seivert says, which makes the chances of a “turn in the cycle” higher. Knowing that likelihood, and that making a deal usually takes at least a year, there are some advisors who are more eager “to get a deal done” now rather than later.

Seivert likens it to the stock market. “When there are IPOs, people wade in and buy” that stock. So now, “when there’s a lot of press about firms selling, that there’s higher deal volume, they think ‘Maybe I should be doing this too.’” While that might be a good approach for sellers — “to be more timing oriented; you don’t sell in the trough,” such as in 2009 — Echelon believes that approach is “not necessarily” optimal for buyers; “you should be buying throughout the cycle.”

4) Increased Deal Assistance
Potential sellers, Seivert says, “have never had more assistance with deal activity in the history of the industry.” Whether it’s issues around the “human capital, legal, ops, tech, and finance” part of a transaction, advisors now have access to many professionals — custodians, broker-dealers, bankers, lawyers, etc. — who can help advisors implement a succession transaction.

Many of the completed deals arise from succession issues or are implemented by “smaller firms who can’t seem to grow,” Seivert says. He cautions that some of those professionals providing assistance don’t “always offer good advice,” and there are many ways to approach a transaction. “It’s like a diet plan,” he half-jokes, meaning that each owner should figure out “which plan works best” for them.

But advisor surveys show that only a small percentage of advisors have created written succession plans, usually around 20%. Doesn’t that keep the number of transactions down? “I’m not so concerned about the 80% of advisors who don’t have plans; it’s the 20% I’m concerned about, because I know how flimsy those plans are.” Those plans, Seivert says, are “like a three-ring binder that sits on the shelf rather than a financial plan that’s living and breathing. The underlying legal parts of their plans and their financial metrics leaves them with something that more often than not could be problematic.” Advisors with those plans, he suggested, should “change their mindsets.”

5) Higher Seller Knowledge 
The increased attention devoted to advisor M&A activity by everyone from conference organizers to the media may raise more questions among potential buyers and sellers than it does answers, Seivert admits. But that attention has also “brought down the fear factor,” he says. What was for many advisors a “deep and wide chasm” over their M&A options has now become shallower, he argues, progress that can be helped by experts in advisor dealmaking.

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