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The RIA Deal Room | 2019
Takeaways – Past Meets Present
New Demands on Buyers New Realities for Sellers
RIAs are being forced to decide how they want Multiples did not rise for everyone. Sellers
to compete. A barbell has formed in the industry, accepted structured deals to achieve the
5.4% with 5.4% of firms controlling nearly 63.2% of AUM transaction’s purpose. The top .5-1% of firms
(by AUM) in the industry are commanding
at the end of 2017. RIAs must decide if they
i
want to compete through scale and inorganic premium multiples, but their journey is not for
growth or stick to a boutique approach. everyone.
Large acquirers set the pace, and deal Acquisition Brands are communicating
sophistication increased. These Acquisition turnkey offerings for prospective sellers.
42% Brands completed 42% of transactions from 2016 Robust capabilities, target markets, and deal
-2018. A compelling story built on long-term
model discipline mean rational expectations
outcomes is critical as access to capital is now on price and structure are required.
table stakes .
ii
Prospective buyers have higher barriers to entry Prospective sellers are experiencing an
than ever before. The average deal average of 60% of cash at closing.
60% demonstrated balance and high down However, focusing on liquidity impacts the
payments. Are potential buyers ready to deploy
overall valuation. Are sellers willing to trade
60% of cash consideration at closing? cash for the highest possible valuation?
Buyers have been competing in a landscape of The median adjusted EBITDA multiple
increasing cash flows. A balance between price experienced less than 10% variation from
and terms based on the transaction’s purpose 2015 – 2018. Approaching M&A with the
<10% and a focus on broader transaction benefits is long-term in mind is vital unless sellers are
key to getting sellers to “yes.”
ready to enter an auction process and
prepared to accept aggressive terms and
structure.
What makes your equity more valuable than the Why are you seeking a transaction?
firm you’re acquiring? More than 40% of the Tradeoffs exist in every transaction structure.
average price consisted of the prevailing firm’s More significant transactions tend to favor
>40% equity. Buyers must be prepared to illustrate a equity, and smaller deals tend to prefer
path to liquidity, a repeatable growth engine,
cash. Sellers should think carefully about the
scale, and platform, or risk being pushed out of ideal buyer profile before entering the
conversations altogether. market as not all match the seller’s goals.
The days of transactions placing all risk on the Are sellers ready to help their prospective
seller (e.g., all contingent, earnout, etc.) are partners? Sellers must prepare for shared risk
over. Greater than 70% of transactions have a and force potential buyers to articulate how
>70% balance of cash and equity, and buyers must all parties come through a transaction.
prepare for integration precision or risk losing to
Sellers are saying yes to balanced purchases
a more established acquirer. and integration acumen.
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