Hightower announced its 13th deal of 2021, this time making an investment in 6 Meridian, a Wichita, Kan.-based wealth management firm with $1.8 billion in assets under management, highlighting a trend in RIA deals of larger firms with more than $1 billion in assets putting themselves on the block.
Hightower CEO Bob Oros said 6 Meridian fit in with the types of firms they’re targeting for investment with a strong focus on client experience, with a growth-minded and diverse leadership. The firm’s executive team is 50% female, led by CEO Margaret Dechant, with an identified roster of next-gen leaders in place.
“They came to this place where they were thinking about setting up the firm for long-term success,” Oros said of 6 Meridian's decision to sell.
Dechant founded the firm in 2015, along with colleagues Thomas H. Kirk, Andrew Mies, Bryan Green, Pam Smith and Sarah Hampton, when they left Morgan Stanley. The RIA focuses on serving corporate executives, entrepreneurs, and other high-net-worth individuals and families. The firm has 24 employees, including 11 client-facing advisors.
“As an independent RIA, we have grown rapidly thanks to our collaborative structure and outstanding team of dedicated professionals,” Dechant said in a statement. “Hightower is investing in us to help with our long-term growth goals, and we welcome the support that allows us to serve our clients for decades to come.”
Valuations for registered investment advisory firms are at all-time highs, up 15–25% from a few years ago. But David DeVoe, founder and CEO of DeVoe & Company, said it's not an unhealthy level, given that many serial acquirers paying the high price tags can help these firms grow at a faster rate after they’ve acquired them.
Oros said that is part of Hightower’s thesis; they can help firms accelerate their growth, but those firms have to be growth-minded. Hightower’s same-store sales are up 8% this year, while net new households were up almost 6% in the first three quarters of this year.
Hightower’s latest deal is an example of a current trend in the M&A space, where larger RIAs are selling and giving up ownership. Over half of RIA deals done in the third quarter involved selling firms with $1 billion or more in assets, up from the historic average of 30%, according to DeVoe & Company’s latest RIA Deal Book. The sale of Private Ocean, the $2.7 billion RIA led by longtime advisor Greg Friedman, to Wealthspire Advisors is another recent example.
“I think it's because the larger firms feel the impact of scale,” Oros said. “And when you start to get north of $1 billion, you've got real head count, you've probably got 15, 20, 25 people depending on your structure and model. You start to have the challenges that come with a growing business, more head count, more real estate needs, more needs for efficiency. And that's the point where you hit this ceiling of complexity that you either have to choose: Do you want to continue to plow through yourself and make those reinvestments back in the business? Or I think what's been commonly happening, folks are looking at a partner who could just help them get that quicker and let them focus on what they really love doing.”
The deal follows Hightower’s announcement earlier this month that it facilitated another sub-acquisition for Lexington Wealth Management, a Hightower advisory business in Lexington, Mass., which acquired Thompson Wealth Management, a $340 million RIA. In late November, Hightower also announced its acquisition of Clear Perspective Advisors, a $700 million wealth management firm in Illinois.