4 Key Drivers of RIA Merger Transactions

4 Key Drivers of RIA Merger Transactions

September 17th, 2019 · 2 min read

What’s the reason for the increase in the level of activity between RIA firms?

While potential financial returns are a big consideration, RIAs who are looking to acquire are more interested in strategic benefits. For firms who are interested in merging or being acquired, it’s critical to know what buying firms may be looking for. If you can meet one – or several – of these drivers, then you’re more likely to be attractive to buyers and to walk away with as much value as possible.

Here are the four factors that Pershing says are driving RIA merger and acquisition activity:

Economies of scale

Pershing says that realizing scale is one of the biggest drivers of most RIA deals. In a firm merger, scale is often achieved by consolidating back-office functions, such as compliance, admin, and marketing. If you have a large asset or client base and are willing to fold your back office support into the acquiring firm’s infrastructure, then you may be an attractive target for acquisition.

Access to new clients

You could also be an attractive acquisition target if you have tapped into a market that has eluded the acquiring firm. Geography often plays a role in this. For instance, a large RIA in a nearby city may prefer to acquire an office in a new city rather than organically grow their own presence. Markets aren’t only defined by geography. For example, an RIA with an older wealthy client base may be interested in acquiring a firm that has tapped into younger clients who are affluent but will be have more wealth in the future. As you enter into discussions with potential buyers, think about how your market could complement theirs. What markets have you tapped that they have missed?

New skills and abilities

Another big driver of RIA transactions is the ability to offer new products, skills, and services to clients. Perhaps you have an established technological platform that allows you to manage your client relationships and service. A potential buyer may prefer to acquire your practice – and your technology – rather than implement a new platform. Expertise can also be an attractive new skill. In the Real Deals report, Pershing highlights a transaction between two RIAs in which the acquiring firm focused heavily on planning, but wanted more investment expertise. Rather than hire their own investment managers, they acquired an RIA in town that was investment-focused.

Ownership succession

Finally, as the industry ages, ownership succession is a significant concern for many RIA owners. They’ve spent decades building a practice. As they approach retirement, they want to get value out of it. Pershing reports that deals that are driven by ownership succession will often involve internal partners. A firm may bring in an advisor for a few years and groom them for an ownership role. Or the firm may facilitate a deal between a retiring partner and an advisor in the practice.

What is clear from the latest Real Deals report is that for RIA buyers, the deal has to be about more than financial returns. There has to be a strategic benefit. If you’re looking to sell in the near future, think about how you can be more strategically appealing to potential acquirers.