Sep 20, 2022

InvestmentNews: The decline of internal succession in the age of integrators and aggregators

person busy typing on a laptop with important documents around on the desk

Advisory sector M&A.  

COVID couldn’t slow it down, nor did skyrocketing interest rates, nor, for that matter, has the now nine-month long bear market.

What began nearly a decade ago as a mild uptick has now become a yearly torrent.

The fact is that larger firms are partnering with smaller firms at a break-neck pace.

While there are a lot of opinions as to why, Allworth Financial’s Co-CEO Pat McClain writes for InvestmentNews that the key reasons are actually the most simple: advisory firm principals are getting closer to retirement, and advisory firms themselves are great investments.

From the article….

A decade ago, internal succession was the norm.

Sure, even back then advisory firm M&A happened, but compared to today, the valuations were proportionately much lower. Simply, in 2012, with a lot of planning and a little creative financing, a principal could reasonably expect to complete an equitable ownership transition with an existing partner or younger advisor.

Today, with competition driving sales multiples upwards of 10X, skyrocketing prices have made internal succession increasingly rare.

The fact is, that even if all interested parties are motivated to keep the transition in-house, and even if substantial outside financing is attainable, the principal still must carry a lot of risk. That not only makes internal succession plans complex, and legally cumbersome, it means they must be implemented over far too many years to make them worthwhile for most seasoned principals. 

Read the full article at