InvestmentNews Article: Three Drivers of Record M&A Activity
With valuations of financial planning and wealth management shops at record highs and private equity focusing on the space, it would seem prudent for firms to at least research their options.
Unless you’ve been intentionally ignoring our industry’s news headlines, you know all too well that the number of completed advisory firm sales and transactions just seems to keep going up.
And if those record setting increases appear to be mirroring the strong performance of the stock market, that’s certainly no accident. A rising market equates to an increase in AUM, which makes right now a great time to sell or find a partner.
Many firm principals, seeking to implement succession plans, are doing just that.
However, in his latest practice management op-ed for InvestmentNews, Allworth Co-CEO Scott Hanson writes that the stock market isn’t the only factor driving the surge.
Learn about the three main drivers of M&A from his September 29th, 2021 InvestmentNews exclusive.
From the article…
The second half of 2021 should break all previously existing records for the number of mergers and acquisitions in the wealth management business.
From what I’ve seen, there are three main factors driving the increase.
First, valuations of financial planning and wealth management shops are at all-time highs, and many firms are receiving offers that are difficult to refuse. Yes, a part of this is due to the bull market. As stocks push higher, so do client account balances, and with those, revenues, and profit margins for the advisory firm.
But there’s a second factor driving up valuations that may be playing an even larger role, and that is that private equity (PE) has fallen in love with the wealth management space. Many PE firms did extremely well aggregating brokerage insurance firms a decade ago and now see the advisory sector as the next best frontier. These firms have raised billions and need to find businesses to invest in so they can earn their management fees and carried interest.
This trend is further augmented by the fact that interest rates are low, and because PE has access to favorable credit terms that don’t require any personal guarantees, this enables PE firms (and PE backed advisors) to buy entirely on credit.
Scott Hanson, Co-Founder, Allworth Financial