RIA valuations and the amount of available debt financing for M&A transactions continue to be strong despite the economic crisis that has been brought on by the COVID-19 pandemic, according to Echelon Partners, a firm that consults on mergers and acquisitions in the advisory industry.
“We’re very blessed to be in a super healthy industry” right now, Dan Seivert, Echelon managing partner, said Friday during the webcast “The Changing Dynamics of Valuations and M&A Activity in the RIA Industry.”
Thanks to the well-accepted valuation methods that continue to be used in the sector, valuations for RIA firms, for now anyway, continue to be strong, he told viewers. As an example, he showed how a $1 billion wealth manager with a traditional 60/40 asset allocation lost only 1.8% of its valuation in March, after factoring in its valuation during the four quarters prior to the close of a deal.
“We don’t believe that valuations have dropped significantly,” Mark Bruno, Echelon managing director, noted.
Meanwhile, there are significantly more debt financing providers now than there were during the financial crisis of 2007-2008 and even since 2011, Bruno said, pointing out there are now six sources that are “providing more and more debt” financing to firms looking to make acquisitions in the sector: local/regional banks, specialty lenders (since 2013), independent broker-dealers (since 2015), wirehouses (since 2016), rollups (since 2017) and platforms (since 2018).
“It has grown significantly since 2011,” he said, noting: “It wasn’t that long ago that the only place you could go if you needed to access debt was a local or a regional bank.” New entrants included SkyView Partners (in 2017), Dynasty Financial Partners (in 2018) and Merchant Credit Partners (in 2019), he noted.
“We think this will also contribute to some of the activity that takes place in a significant way, picking up where things left off in 2018 and 2019,” he said.