Speaking with Dick Darian is always a master’s education in industry M&A, and the environment he currently describes only adds to the excitement.
“The deal flow is off the charts,” Darian, partner and co-founder of independent consulting firm Wise Rhino Group, says with a bit of wonder. “If you think about fear and love ruling the world, there was definitely a lot of fear out there. The pandemic gave people a chance to stop and reflect, but it also incented them to figure out what to do next.”
He counts 2018 as the beginning of the recent M&A frenzy, kicking off with firms like Sheridan Road and a few others. Still, he believes 2020 was the first move towards significant deal flow on the retirement side when compared with what’s traditionally seen on the wealth and benefits side. The result will be “compelling transactions” announced over the next two months, five or six from Wise Rhino alone.
Indeed, soon after the interview, Boston-based Alpha Pension Group, a firm represented by Wise Rhino Group, announced that HUB International acquired it as part of the latter’s unprecedented buying spree over the past year.
“When I reflect on who is selling, it’s interesting that it’s many of the best firms,” Darian notes. “If you’re a talking about Sheridan Road or Centurion, you’d say, ‘Well, they can stand on their own and continue to grow.’ But the best firms are the ones recognizing that things are changing, and they have incredible opportunities to partner with larger, better-capitalized, and talented firms. When you look at the 25 or 30 firms that entered into partnerships, it’s some of the best firms in the industry.”
And they’re not acting from a sense of panic, he emphasizes, but rather opportunity.
“I thought after last year the multiples would settle back down, but they actually went up this year. If you look at the multiples right now, they are at an all-time peak and have gone up from the end-of-year-deals last year.”
Overvalued?
Whether the exuberance is irrational won’t be known for some time, “about 10 years” Darian says with a smile.
“It’s like when you buy a house; you only find out when you eventually sell it whether you paid a reasonable price. But it’s still a seller’s market because, by simple definition, you have more firms chasing fewer sellers. That will change at some point. Advisors aren’t getting any younger, so it’s a regular flow of things.
Whatever the reasons, Darian says it will continue, with 2021 much like 2020.
“There’s no reason it won’t continue. Many buy-side firms are looking for specific shops, especially in certain geographies, because they’re all trying to create a national footprint. That will continue. And they’re also all still trying to scale their businesses, and they’re not there yet.”
And the value of wealth management, of course, will continue to rise.
“There’s this shift in the opportunity to engage the participant to build out a wealth business,” he concludes. “Everybody is focused there. To execute, not only do you need that middle business where you can engage the participant—with a combination of technology and people—but you need a wealth operation to handle it. You’re going to see more acquisitions by these large retirement firms in building out an equivalent wealth business to complement retirement.”