Why Supercharged RIA Mergers, Acquisitions Market May Accelerate

Charles Paikert

24 May 2021

The red hot RIA M&A market shows no signs of cooling down, according to one of the industry’s leading buyers.

“The market is not slowing down anytime soon and actually might even accelerate,” said David Barton, vice chairman of . “Sellers are doing their due diligence and really do want to know what it’s like to work with certain firms,” Guirguis said.

The strong demand among buyers for a limited supply of firms has also meant fewer contingency provisions and "earn-outs" in deals.

Instead, more deals are being structured to offer sellers increased incentives for reaching various metrics. Mariner’s “management incentives” are structured over a three-year period, Bicknell said, measuring a firm’s growth beyond the cash flow at the time Mariner bought it.

While cash still accounts for nearly three-fourths of the average deal structure, the number of transactions that included some equity increased 13 per cent in 2020, according to Advisor Growth’s Deal Room report, a trend that appears to be continuing. Mariner is seeing “a relatively high demand for equity” so far this year, according to Bicknell.

And all panelists agreed that big buyers would continue to seek funding from private equity capital providers.

Mercer now receives funding from its third capital provider and equity stake holder, Oak Hill Capital. Captrust sold a 25 per cent stake to private equity firm GTCR last year at a $1.25 billion valuation. In April, Mariner took outside capital for the first time, selling a minority stake to Leonard Green & Partners.

Advice for sellers
Benton: “Don’t over-promise to employees about what they can expect from a transaction.”

Bicknell: “Ask yourself ‘what is my ideal situation and what is non-negotiable’ for a sale.”

Barton: “Go deep on your own numbers, make sure they’re represented fairly and that there are no crazy adjustments. And make sure your core beliefs are the same as the buyer’s. Remember, it’s not about the honeymoon, it’s about the marriage.”