The RIA M&A market continues to be a no-show, though 2012 pace is ahead of 2011

The M&A market has been and will be volatile in terms of the number of transactions in any given period. However, advisory firm owner demographics tell us that owners are getting older and more transfers of ownership are inevitable. Over the next decade, the number of transactions should only go one direction – higher!

Sometimes we (as an industry) tend to shine the light too brightly on deal flow and succession planning. This is only the end game that all owners will eventually have to play. Owners should give equal attention, if not more attention, to addressing key structural issues in their business such as continuity planning, certainty for clients, employees & owners in the short and intermediate term, and growth planning that drives future revenue/limits business risk. Firm owners that focus on these areas will find their options for succession to be far greater. The key is to be proactive and plan for what the end game could be – think 10 year horizons!

There is reason to be optimistic about the future of the industry. The number of succession and business continuity options are increasing and advisors will have greater choice. Not only are the options increasing, but our industry’s ability to effectively facilitate transactions is also rising. aRIA, along with other large RIAs, are taking a leadership role in terms of educating their peers on their options, how to build sustainable advisory firms, and solve for key strategic challenges this article mentions.

Hi John,

Thank you for adding this body of information. I know that firms like yours are optimistic and growing for what you believe is coming down the pike. And with RIIA, you’re working to do something about it from a broader perspective. In other words you’re putting your money, and heart, where your mouth is. Deal flow isn’t everything but it’s a leading indicator that we can all understand (at least a little). And deal flow is always tepid, tepid and more tepid. The only thing I’ve seen in the RIA M&A business that’s as consistent as the lackluster deal pace is the certainty that 'next year’ it’ll all start to pick up. So my journalistic skepticism is on red alert.

Brooke

'Stripping the fallen for valuables’ is a sad, scary and true analogy Brooke.

Succession planning would be a bit less of an urgent issue for advisors if they would just create continuity agreements in case of death or disability. That gives those trying to grow an internal successor longer to go through the time-consuming process.

Advisors, read my RIABiz article on the topic called, “Have an aversion to succession plans? Consider a continuity pact as a vital baby step” found at http://www.riabiz.com/a/10963492/have-an-aversion-to-succession-plans-consider-a-continuity-pact-as-a-vital-baby-step

Don’t put it off any longer… your family and clients will be happy you didn’t!!! – Mike Byrnes, President of Byrnes Consulting, LLC, www.byrnesconsulting.com

PS just tweeted this @ByrnesConsultin

We work with buyers and sellers. We are doing more of this work. We’re good at it. Our transactions work for both parties long term. It’s gratifying. An orderly, successful business transition is a win for every stakeholder — including the vendors, suppliers and partners (remember that!).

Brooke does, another, good job of reporting and thinking about the situation. Here are some our experiences and impressions.

1. Demographics is Destiny – Not much about the future is predictable but aging and death rates are. The Boomer generation is the largest in history and is heading towards retirement. Business transitions will happen after funerals haphazardly, if not planned before.

2. Liquidity Needs are Growing – Funding retirement is becoming more expensive because of longer lives, inflation and expanded life-style needs. Owners must maximize the valuation of their businesses and get paid. Caution: In the past, getting paid vs promises has been a problem.

3. Acquisition are the Best Way to Grow — Some good, but not well known, research says acquisitions beats organic growth hands down. Logically, it makes sense. Organic growth has become very expensive of resources and very, very hard. Most markets are saturated.

4. Growth is the Key Business Value — Everyone wins if the business continues to grow for the 3-5-10 years following a transition. Buyers buy growth and sellers get paid on growth.

5. Valuations are Usually Wrong — Few firms do a formal valuation with a valuation firm that understands the industry and can articulate the real value. Everyone loses if the valuation is wrong. For the long-term health of the business — a seller getting overpaid and a buyer underpaying create problems.

6. It’s Not Just About the Money – Once a good valuation is in place, the terms of deals are pretty much standard and driven by accounting conventions. Much more ambitious and powerful are the psychological and intangible aspects of a transition. What are spouses and family interests? What ambitions does the owner(s) have after the transition. What are the interests of key employees? These usually become problems when they are not discussed openly and iteravely.

7. It’s Not a “Deal” It’s a Transition of a Lifetime Business – We are as hard headed as anyone but – the deal is just the first step in maximizing the value of this business, that usually took a lifetime to build. You can “win” the deal and “lose” the business.” If the business doesn’t A) Continue and B) Grow — everyone loses. Everyone. Client’s, vendors, partners, suppliers, employees, supporting professionals, etc. Everyone. Typically any investment banker will get their fee and “win” however — so be cautious there.

An orderly, successful business transition is a win for every stakeholder — including the vendors, suppliers and partners (remember that!).

Brooke does, another, good job of reporting and thinking about the situation. Here are some our experiences and impressions.

1. Demographics is Destiny – Not much about the future is predictable but aging and death rates are. The Boomer generation is the largest in history and is heading towards retirement. Business transitions will happen after funerals haphazardly, if not planned before.

2. Liquidity Needs are Growing – Funding retirement is becoming more expensive because of longer lives, inflation and expanded life-style needs. Owners must maximize the valuation of their businesses and get paid. Caution: In the past, getting paid vs promises has been a problem.

3. Acquisition are the Best Way to Grow — Some good, but not well known, research says acquisitions beats organic growth hands down. Logically, it makes sense. Organic growth has become very expensive of resources and very, very hard. Most markets are saturated.

4. Growth is the Key Business Value — Everyone wins if the business continues to grow for the 3-5-10 years following a transition. Buyers buy growth and sellers get paid on growth.

5. Valuations are Usually Wrong — Few firms do a formal valuation with a valuation firm that understands the industry and can articulate the real value. Everyone loses if the valuation is wrong. For the long-term health of the business — a seller getting overpaid and a buyer underpaying create problems.

6. It’s Not Just About the Money – Once a good valuation is in place, the terms of deals are pretty much standard and driven by accounting conventions. Much more ambitious and powerful are the psychological and intangible aspects of a transition. What are spouses and family interests? What ambitions does the owner(s) have after the transition. What are the interests of key employees? These usually become problems when they are not discussed openly and iteravely.

7. It’s Not a “Deal” It’s a Transition of a Lifetime Business – We are as hard headed as anyone but – the deal is just the first step in maximizing the value of this business, that usually took a lifetime to build. You can “win” the deal and “lose” the business.” If the business doesn’t A) Continue and B) Grow — everyone loses. Everyone. Client’s, vendors, partners, suppliers, employees, supporting professionals, etc. Everyone. Typically any investment banker will get their fee and “win” regardless however — so be cautious there.

Now is a good time to be a buyer or sellers. Sellers are not competing with everyone rushing for the exit and buyers face reasonable valuations.