What does it mean, he rhetorically asks?
By his count, there are another 500 to 750 high-quality, independent RIA retirement and wealth businesses that could be acquired, and the industry is still a long way from their completion.
Diving deeper into driving factors, he then mentions (of course) buy-side firms’ desire—or need—to be in the retirement and wealth business “in a bigger way.”
“There are enough strong retirement and wealth advisory firms that, whether it’s demographically and they’re aging out, they’re simply ready for something else or they see the opportunity in joining a bigger, firm, the environment was ripe for this.”
Because it’s a sellers’ market, he adds, it sets up a dynamic where the prices will be above market. Firms have undoubtedly gotten great prices for their businesses, and at the beginning of this kind of a market, the early opportunities are often the best.
“Over time, however, as each of these firms absorb and begin to build out their operations, the multiples will normalize. The question is, how long will that take? But it’s inevitable.”
And it’s not only about the multiples. In many cases, practitioners have been building their firms for 20 or 30 years; they don’t want to leave until they’re ready for the next step, “or that career move to build something bigger, different and special.”
Emotions in Motion
Darian makes an important point, and many sellers note that although they thought they were ready for the emotional impact of a merger or acquisition, reality differed when the deal was done. Indeed, it particularly resonated when raised by Sheridan’s O’Shaughnessy during a panel discussion about the current M&A environment at industry aggregator GRPAA’s Finnovation Conference in San Diego last fall.
Redundancy often means a certain amount of staff are let go, and no longer working with dedicated employees was difficult for O’Shaughnessy and the firm’s other executives, especially co-founder Daniel Bryant, who was now on a side of a transaction that he was not used to.
“I was an investment maker beforehand, so I’ve seen hundreds of M&A transactions,” says Bryant, president of National Sales, Retirement and Private Wealth at Sheridan Road Financial (now a division of Hub International).
“You don’t have an emotional attachment to it. I always knew I’d be emotionally attached to a brand I created, but candidly, I didn’t realize just how difficult it would ultimately be to relinquish control over certain aspects like hiring, culture and teamwork. The things that made us a family— open-door policies were everyone can just come in—that’s changed a little bit just given the nature [of being acquired]. I guess I expected it, but I didn’t expect how it would make me feel and react. It’s nothing negative, this is just me personally.”
So, what, if anything, would he do differently, and what would he like other sellers to know?
“The most important thing is emotionally and mentally getting your head around relinquishing control over your business and your practice,” Bryant reiterates, “because things will change, and they will do it differently than the way you would do it. They will want to hire people you wouldn’t normally hire. They may want you to go in a different direction than you normally would. It’s nothing earth-shattering, but be prepared for knowing that, ultimately, there’s somebody else in charge. It’s largely the case that they will let you do your thing, but for those of us like Joe DeNoyior, Barb Delaney and Chad Larsen, who have had total control over all aspects of our daily business, that goes away a little bit.”
Like Darian, he notes that it’s a sellers’ market with a massive amount of money up for grabs, and private equity firms have finally realized the opportunity that comes with the client relationship.
