Several leading RIA and MFO firms joined us at the Addepar Summit recently for a behind-the-scenes look at mergers and acquisitions in the wealth management space. Addepar’s Janeen France, who led the panel, spent several years as Head of M&A Strategy & Relationship Management at Hightower, playing a vital role in establishing the firm’s RIA acquisition channel. Here are her key takeaways:

Navigating a changing landscape 

Consolidation is shaping the industry, but the nature of mergers and acquisitions continues to change. From size to complexity, deals are evolving — and the wealth management industry is keen to ensure its M&A strategy keeps pace. 

During our conversations at the Addepar Summit, it became clear that the rising price of acquisitions was top of mind for many on the panel. Reports of multiples hitting as high as 24x EBITDA sparked some exciting debate, with firms keen to warn against overpaying in the current climate. According to the 2024 Mid-year RIA M&A Market Report from Family Wealth Report, the industry average for multiples last year was around 10x EBITDA. For smaller RIAs under $500 million AUM, those multiples are creeping up to between 8-11x EBITDA.1

Several Summit attendees stressed the importance of knowing when to walk away — particularly when valuations become too inflated. In such a high-demand environment, where firms are seeing increased competition for quality targets, disciplined deal-making has never been so critical. Despite high costs, firms are doubling down on cultural alignment and growth potential. Knowing when to walk away from overvalued deals has become a critical skill, ensuring acquisitions deliver not just scale, but long-term value.

Building the right culture

At the Summit’s M&A discussion, the panelists reached a consensus on the same three key factors for success: cultural fit, leadership alignment and operational cohesion. Cultural fit was seen as a deal-breaker, with some on the panel citing it as non-negotiable. Firms relayed examples where, after due diligence, deals had been called off if there was a lack of cultural fit. In some instances, firms with strong cultural appeal sealed the deal, despite not being the highest bidder — proving the influence of a great cultural fit should never be underestimated.

Firms typically want to acquire other firms or teams that have built strong client relationships. During due diligence, firms take a close look at how advisors interact with clients and assess whether this aligns with their own approach to client care. It was reported that firms with a higher degree of client focus are retaining an impressive 98% of their clients through the transition.

Of course, it’s also important to communicate the value of the acquiring firms to clients, helping them to understand the value proposition and potential to deliver value beyond what was available pre-merger. Whether it’s holistic wealth management, tax services or access to specialized expertise, keeping clients informed of the benefits of an acquisition is critical to maintaining their trust and business.

Transitioning teams and their technology

A strong sense of alignment often defines the early stages of an acquisition. Some firms view their earliest acquisitions with a sense of pride viewing them as early adopters, brave enough to help set the stage for future growth. 

In the discussion, technology compatibility emerged as another critical factor: streamlined transitions minimize client disruption and protect relationships. Once a deal is done, smooth integration starts with ensuring that newly acquired teams embrace the acquiring firm’s culture and client-centric ethos. 

When it comes to tech, the panel also highlighted how much easier compatibility can make integrations and transitioning clients. The most challenging part of navigating a merger or acquisition is transitioning any client-facing technology, so firms try to minimize the impact on clients whenever possible.

Firms increasingly leverage project management offices (PMOs) or integration playbooks to guide these transitions. Some maintain a single brand and tech stack post-merger, reducing complexity and fostering operational cohesion.

An alternative approach to M&A

To thrive in this increasingly competitive and costly market, firms are adopting a multi-pronged growth strategy — consisting of not just mergers and acquisitions, but lift-outs as well. 

Lift-outs — where advisors leave RIAs to join a different firm or start on their own — present a cost-effective, lower-risk alternative to full-scale mergers. Acquiring an intact team, which already works well together, often allows for quicker integration and faster returns than purchasing an entire firm. A full team already functions effectively, enabling faster integration and time to efficacy.

The great balancing act: growth vs client experience

Inevitably, the discussion turned to asking, how big is too big? Some believe they may reach a point where they start to resemble institutional firms, but most want to avoid becoming as large or bureaucratic. Firms echoed the sentiment that their clients expect a boutique experience combined with the scalability and resources of a larger organization. Maintaining this balance is a key focus for growing RIAs.

Doing your due diligence

The panel agreed that sourcing deals through existing networks often streamlines negotiations. While detailed due diligence questionnaires can expedite the process, the timeline typically ranges from 4 to 8 weeks, with external factors like legal reviews sometimes extending the process.

Ultimately, finding the right cultural and strategic fit — both for clients and teams — remains the cornerstone of successful M&A.

Reference:

  1. Mid-year RIA M&A Market Report: Winners, Losers And Trends, Family Wealth Report, July 16, 2024.