It is widely reported that 2021 marked eight consecutive years of record M&A activity in the RIA space. A major motivating factor for buyers is the simple truth that many RIAs are experiencing slow organic growth. In an attempt to stem the slowdown, companies are looking to the M&A sector for the first time, hoping an inorganic strategy will get them back on track. As more buyers enter the space, a different story is happening with sellers. Ratings are at an all-time high, resulting in many RIA owners thinking to themselves, “I can’t pass these multiples!” So they are also, for the first time, negotiating with potential suitors. With all this activity happening, it is becoming increasingly difficult for buyers to stand out among the 15 or 20 other acquaintances who are talking with sellers. Similarly, vendors are trying to stand out in a crowded area of firms shouting, “Pick me up! Pick me up!” And here we find, amidst the hustle and bustle of the busy M&A market, talent is playing an increasingly more important role in the M&A conversation.
We have all read the articles and felt the impact of the great resignation on the RIA industry. And now it seems that each RIA is looking to hire additional talent to support the growth it has experienced over the years. But at the same time, employees are questioning where in the country they want to work, how they want to work and for whom they want to work. This is a difficult proposition for employers and employees alike. Just as buyers seek to acquire customers through M&A transactions, many RIAs have turned to M&A as a means of acquiring talented, field-tested employees as well.
In episode 39 of The COO Roundtable Podcast, Rob Zilliak of Buckingham Wealth Partners said, “The simple reality is that we’re having a harder time filling roles that we’ve posted anywhere sooner than we used to. To be honest , so what we’ve found is that the most natural way to acquire talent is through acquisitions. Because if we’re able to find an RIA like-minded owner or owners who want to join Buckingham, we have those great Has the ability to capture the talents that they have built up around them as well.”
Brandon Kaval of Advisor Growth Strategies concurred with this sentiment when I recently sat down with him for a conversation about M&A, Inside COO Society: In the RIA industry, we are witnessing a race to unprecedented size and scale. Firms are looking for a nationwide footprint, from coast to coast. To achieve this, they have to add really great people. They are looking for not only depth in geographic markets, but depth in functional expertise. As we all want to add more and more services to our offering, buyers are using M&A to get these experts. Wise sellers will uncover the talent pool in their organization when talking with buyers, telling them, “You really want to acquire us—in addition to our AUM, we have great people who will become your great people with acquisitions! “
But it’s not only buyers who are evaluating a seller’s talent—RIA owners trying to decide which firm they want to align themselves with will also examine the depth of the buyers’ talent. As Brandon explained, “The story buyers tell in order to attract sellers must include talent – what is the depth of talent in the team? What are the strengths of the bench? Successful buyers have access to more than just money management and financial planning.” Beyond that, there should be people of all disciplines. Sellers are looking for additional services beyond what they are offering today.” He continued, “Sellers are valuing the talent pool of buyers because the buyer has potential expertise that sellers lack. , or it’s not something they put in the time and effort to bring home.”
As we’ve written about several times, a successful M&A pitch to sellers will highlight the expertise of the buyer’s organization. “Sally Roth is an expert in conversions,” or, “You can bring Carlos to your client meeting to discuss diversification strategies for focused stock positions,” or, “Bobby runs our fixed income trading desk.” Having multiple owners with specific management responsibilities brings leverage and expertise – with more arrows in their prospecting quiver, sellers will see how they can close more business, and serve customers in a more meaningful way if they Join the buyer’s firm.
With interest in M&A transactions at an all-time high, both buyers and sellers should establish an edge when they sit at the negotiating table. In today’s tight labor market, uncovering talent at the top and bottom of an organization is a powerful way to stand out among competitors. While it is incredible to see how great resignation has fueled demand for talent, it is even more incredible to see how it is being leveraged to outpace competition in the M&A arena. Talent is an asset, don’t forget to bring it to the table!
Matt Sonnen is the founder and CEO PFI Advisoras well as the creator of the digital consulting platform, 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 Round Table podcast. follow him on twitter @mattsonnen_pfi
