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October 07, 2020 at 02:21 PM
The RIA deal environment is currently more of a “mixed market” than a buyer’s or seller’s market, according to Daniel Seivert, Echelon Partners CEO and managing partner, and Mark Tibergien, the former CEO of Pershing Advisor Solutions.
Related: RIA Deals Broke Record in Q3 on Future Tax Worries: DeVoe
The executives gave their takes on the current market during an Echelon Deals & Dealmakers webinar on Tuesday in which they discussed the top issues facing dealmaking and the future of the wealth management industry. The webinar was moderated by FiComm CEO Megan Carpenter.
“There still is a lot of money chasing deals, particularly private equity money in minority positions,” according to Tibergien.
The number of deal announcements has continued in force in recent weeks and, “in virtually every case where there is an advisor firm that’s for sale, there are multiple buyers,” he said. That “favors the seller in terms of price, and it favors the seller in terms of terms.”
Seivert challenged him, saying it can be argued that it’s more of a buyer’s market for four main reasons:
- EBITDA valuation multiples are low in the wealth management industry compared to other industries.
- Deal structures are largely favoring buyers, who can pay over time.
- There are many buyers now.
- There are relatively few sellers.
“We need to be selling about 6% of the industry right now and only 3% of the industry is being sold, or about 200 firms per year,” Seivert said. Because of that, “buyers are able to wield a lot of control in their negotiations over sellers.”
Why It’s a Mixed Market
Seivert, however, went on to classify it as “more of a mixed market” than a true buyer’s market. Valuations are neither truly low nor high, but more “medium” and “quite good, in general, for sellers,” even if they are “not near the levels that they should be.”
Deal structures are similarly a “mixed bag” in which “sellers are getting some really favorable structures that allow them to lean in and get some extra benefits, and the buyers are being creative,” Seivert said.
And, while the number of sellers is in the “medium” range, despite the large number of buyers, “there’s a lot of pretenders and folks that are talking about it, and a very few number of folks that are actually doing most of the transactions,” he said.
