M and A

Behind the M&A Numbers: What Makes Deals Work

Charles Paikert, New York, October 18, 2021


Recent years have seen a record-breaking amount of M&A activity in wealth management, as regularly chronicled here. We delve deeper into the reasons why owners are selling and others are buying, and what the future shape of the sector might look like.

Sure, the RIA mergers and acquisition numbers so far this year are head spinning.

Depending on which research you cite, there have been either 135 (per Fidelity), 165 (DeVoe & Co) or 208 (Echelon Partners) M&A transactions through the third quarter. Whichever number you choose, all three firms say the deals to date have already exceeded the total for 2020.

Expect the M&A frenzy to continue, said Tony Parkin, managing director, business consulting and education for Schwab Advisor Services. This year’s frenetic deal activity “feels like the new normal.”

But numbers are only “a small part of the story,” according to Parkin. “M&A transactions are about so much more than deal economics.”

RIA executives at a Schwab M&A press briefing who were recently involved in deals as buyers or sellers agreed. 

Both buyers and sellers, the executives said, need to envision what their firm needs for future growth, decide on deal imperatives, prepare accordingly and find the right match for cultural alignment.

Two years ago MTX Wealth Management was seeking a partner as much as a buyer, said the firm’s founder and president Steve Trax. MTX wanted to improve its family office service, investment capabilities, succession planning and opportunities for employees, Trax said.

“Defining our vision was incredibly helpful and we wanted to work with like-minded folks,” he said.

MAI Capital Management was larger than MTX and wanted a national presence and also sought to fill in gaps in its service offering, said managing partner Rick Buoncore. When looking for partners, MAI looks for firms “that have the same passion to take care of the client,” Buoncore said.

MTX fited the bill and MAI offered to take care of operational tasks such as compliance, operations and tech to allow MTX advisors to spend more time with clients. The result was a nearly $6 billion merger in June 2019.

Kissing frogs
When Diane Young founded Athena Financial Group in 2004, she knew from the beginning that she eventually wanted to sell the firm, but also wanted to be able to maintain “what made it special.”

When Young decided it was time to sell, “I kissed a lot of frogs before I found my Prince Charming,” she said. Meanwhile, Arrowroot founder and CEO Rob Santos compared what his firm was doing with the Oakland A’s baseball team portrayed in the book “Moneyball.”

“We’re trying to win the championship with less money than others in the market,” Santos explained. “We want to bring in people with other skill sets who have a deep knowledge of their local community. And we tailor our value proposition for smaller enterprises who want to take it to the next level.”

Young and Santos both liked what the other had to offer and Arrowroot and Athena merged in January 2021.

M&A advice for advisors
What advice do the executives have for wealth managers also pondering whether to buy or sell?

While “fit” is important, the interaction between the two parties “doesn’t have to be perfect,” Trax said. Exchanging “different views” can be stimulating and productive for both parties.

Preparation is key, said Buoncore. “Don’t do a deal to fix a problem. Fix the problem, then get acquired.”

Be realistic, Santos counseled. “Denial is not a business strategy. We’re living in a world of change. Define what success means for you, and not just financially. Take your time, there’s a lot of options out there.”

Knowledge, process and communication are all critical, according to Young. 

“Understand your practice so buyers know what they’re getting,” she said. “Think of M&A as a process: you’re dating, then you’re engaged and then you get married. 

“Communication is probably the number one thing,” she concluded. “Think about frequently asked questions all the way through. ‘What’s in it for me’ is what everybody is thinking about.”

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