Do the three recent mega deals for RIAs portend a buying spree of RIAs by private equity firms?
Joe Duran, CEO of United Capital, an RIA aggregator, thinks that these three deals are just the beginning for private equity firms that see something in larger RIA firms, possibly as platforms to acquire smaller ones.
Though the purchase of the Mutual Fund Store for $560 million (12 times EBITDA) was something of an outlier (Financial Engines is not a PE firm), deals by Lightyear for Wealth Enhancement and by Hellman & Friedman for Edelman were reportedly at even higher valuations. In addition, the sellers were also PE firms, a market that tends to be “fastidious” buyers with smart investors.
Conclusions:
- Big is good; bigger is better — it's good to have a team that can not only manage multiple locations, but is also proficient at onboarding and training, providing a platform for future expansion as well as capital to invest in technology and national advertising.
- Acquisitions of RIAs will reach a boiling point.
- The end of cult personalities — a firm that can survive and thrive without its founder is more valuable.
It’s interesting that PE firms are also buying record keepers (e.g., Ascensus and Verisight), which in turn bought from PE firms. It’s also interesting that Lightyear sold Cetera to RCAP, moving away from BDs to RIAs.
For plan advisors, the trend bears watching.
