Private equity trends suggest there is ample capital available to purchase registered investment advisory (RIA) firms in the U.S. and that enthusiasm for M&A deals could make its way to Canada.
But before advisors get too excited about private equity swooping in and buying everything in sight, some PE firms are waiting on the sidelines until markets stabilize but even without those potential buyers stepping up, it appears there are plenty of investment firms willing to open their chequebooks.
“There’s a lot of private equity money pursuing financial advisory firms at a reasonable price because there’s so much growth opportunity,” Pershing Advisor Solutions CEO Mark Tibergien recently told Financial Planning magazine.
“There’s an oversupply of clients and an undersupply of advisors.”
Raymond James president Bill Van Law said as much this week speaking at the MarketCounsel Summit suggesting there is no shortage of M&A capital.
“Buyers are still attracted to wealth management,” said Elizabeth Nesvold, managing partner at Silver Lane Advisors while speaking at the MarketCounsel Summit. “They see the average RIA growing at 15% plus in a minimally capital intensive business, and baby boomer demographics driving the need for financial and estate planning advice.”
Valuations south of the border are moving higher, possibly approaching nosebleed levels, experts suggest.
Firms with less than $500 million in AUM are getting 4-7 times cash flow; those between $500 million and $1 billion are fetching 5-8 times cash flow; and those above $1 billion are getting valued at 6-9 times cash flow.
“I think valuations are likely to continue to be strong,” said David DeVoe, founder of DeVoe & Co., the M&A consulting firm in San Francisco. “They’ve been steadily increasing over the last five years and there is no shortage of buyers now.”
It’s a seller’s market in the U.S.; Canada is likely to follow.