It has been widely reported that 2021 marked the eighth-consecutive year of record M&A activity in the RIA space. A principal driving factor for buyers is the simple truth that many RIAs are experiencing slow organic growth. Seeking to remedy the lull, firms are looking to the M&A arena for the first time, hoping an inorganic strategy will get them back on track. As more buyers enter the space, a different story with the same effect is taking place with sellers. Valuations are at all-time highs, which has resulted in many RIA owners thinking to themselves, “I can’t pass up these multiples!” So they too, for the very first time, are engaging in conversations with potential suitors. With all of this activity taking place, it is becoming increasingly difficult for buyers to stand out among the 15 or 20 other acquirers who are speaking with sellers. Likewise, sellers are trying to stand out in a crowded field of firms screaming, “Pick me! Pick me!” And here we find, amid the hustle and bustle of the busy M&A market, talent is playing an increasingly more vital role in M&A conversations.
We’ve all read the articles and felt the impact of The Great Resignation on the RIA industry. And now it seems that every RIA is looking to hire additional talent to support the growth experienced in the past few years. But at the same time, employees are questioning where they want to work in the country, how they want to work and who they want to work for. It’s a tricky proposition for employers and employees alike. Just as buyers are looking to acquire clients through M&A transactions, many RIAs have turned to M&A as a means to acquiring talented, field-tested employees as well.
In Episode 39 of The COO Roundtable podcast, Rob Ziliak of Buckingham Wealth Partners stated, “The simple reality is, we're having a hard time filling the roles that we have posted anywhere near as quickly as we used to. Frankly, what we've found is the most natural way to acquire talent is via acquisition. Because if we're able to find a like-minded owner or owners of an RIA that would like to join Buckingham, we have the capability of capturing the great talent that they've built around them as well.”
Brandon Kawal of Advisor Growth Strategies agreed with this sentiment when I recently sat down with him for a conversation about M&A inside The COO Society: Across the RIA industry, we are seeing a race for unprecedented size and scale. Firms are looking for a nationwide footprint, from coast to coast. In order to achieve that, they must add really great people. They are in search not only for depth in geographic markets but also depth in functional expertise. As we all look to add more and more services to our offering, buyers are using M&A to acquire these specialists.” Wise sellers will highlight the talent pool at their organization when speaking with buyers, telling them, “You really want to acquire us—in addition to our AUM, we have great people that will become your great people with an acquisition!”
But it’s not just buyers who are evaluating the talent of the seller—RIA owners trying to decide which firm they want to align themselves with will examine the depth of talent of buyers as well. As Brandon explained, “The story buyers tell to attract sellers must include talent—what is the depth of the talent on the team? What is the strength of the bench? Successful buyers must have people across disciplines, beyond just money management and financial planning. Sellers are looking for added services beyond what they offer today.” He continued, “Sellers are evaluating the talent pool of buyers because there is potentially expertise at the buyer that the seller is lacking, or it simply hasn’t been something they have taken the time and effort to bring in-house.”
As we have written many times, a successful M&A pitch to sellers will highlight the specialization of the buyer’s organization. “Sally is an expert at Roth conversions,” or, “You can bring Carlos into your client meetings to discuss diversification strategies for concentrated stock positions,” or, “Bobby runs our fixed income trading desk.” Having multiple owners with specific management responsibilities provides leverage and expertise—with more arrows in their prospecting quiver, sellers will see how they can close more business and serve clients in more meaningful ways should they join the buyer’s firm.
With interest in M&A transactions at an all-time high, both buyers and sellers must establish an edge when they sit down at the negotiating table. In today’s tight labor market, highlighting the talent up and down the organization is a powerful way to stand out among competitors. While it’s incredible to see how The Great Resignation has increased demand for talent, it’s even more incredible to see how it is being leveraged to edge out competition in the M&A arena. Talent is an asset, don’t forget to bring it to the table!
Matt Sonnen is founder and CEO of PFI Advisors, as well as the creator of the digital consulting platform, The COO Society, which educates RIA owners and operations professionals on how to build more impactful and profitable enterprises. He is also the host of the popular COO Roundtable podcast. Follow him on Twitter at @mattsonnen pfi