Advisors Explain How They Made An Acquisition Work

April 11, 2018, by Financial Advisor Magazine
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Aspiriant, a wealth management firm based in Los Angeles, has doubled its size since its founding in 2008, by acquiring $6 billion in assets through five mergers.

The firm, with $12 billion in AUM, is a prime example of the inorganic growth achieved by those who can manage a successful merger or acquisition.

PFI (Pure Financial Independence) Advisors, a consulting and service firm for RIAs, also based in Los Angeles, says for an advisory firm to be successful at aquisitions like Aspiriant and others, it must implement certain strategies. In a report, “Becoming a Professional Buyer — Harnessing RIA M&A Strategies for Growth,” PFI lays out some of the ground rules it has developed for successful acquisitions.

In Aspiriant’s case, CEO Rob Francais said, “We don’t think of these as acquisitions at all. We really consider these integrations as ‘fold ins,’ and we approach all opportunities as cashless mergers.”

Francais would like to see the day in the not too distant future when Aspiriant has 100,000 employees and $1 trillion AUM.

“We offer a values-based pitch [to companies we want to acquire], not a financial pitch, and that has made all of the difference in attracting partners that are a cultural fit and are durable,” he says.

Beacon Pointe Wealth Advisors, based in Newport Beach, Calif., has had similar success with acquiring other firms, adding $3 billion in AUM through 11 transactions to grow its firm to $7.7 billion in AUM. As a serial acquirer, Beacon Pointe focuses on the benefits for incoming advisors.

The acquisition model appeals to the next generation of advisors and to advisors who want to grow their practices, said Matt Cooper, founding partner and president. Several industry trends are behind the increases in acquisitions and mergers, such as the fact that advisors are aging, clients expect more services, margin compression is continuing, and the complexity of doing business is increasing.

To become a successful acquirer a firm needs to have an easily communicable message about the firm and about its strategic direction, up-to-date technology, and an exceptional operating structure to showcase to the selling firm, said PFI.

In addition, having multiple owners with specific management responsibilities provides leverage and expertise so that selling firms know their clients will be well served.

The buyer needs to show it has the management capability to handle an acquisition. Successfully completing a transaction and realizing the promised synergies takes a full-time, focused effort by one or more management principals, PFI said.

A transparent compensation method needs to be in place and the acquiring firm needs a strong, defined culture so that the seller can see his or her firm fits with the larger entity.

PFI added, “In order to harvest the promised synergies from an M&A transaction, it is critical that a majority of the clients transition to the new firm and have a good experience in order to ensure retention.” To accomplish this, a post-M&A transition strategy, team and onboarding resources need to be in place.

There are also things for the potential acquirer to avoid if he or she wants to be successful, said Matt Sonnen, founder and CEO of PFI.

“One of the biggest mistakes they make is using the same pitch for potential clients and for a firm to be acquired,” Sonnen said. “You need to tell the advisors how you are going to make their lives easier. So be careful you are not delivering the same message you would to a prospect.“

The second thing to avoid is thinking you will build up the infrastructure after you acquire another firm. “You need to spend the money ahead of time in people and technology in order to attract other firms,” he said.

One firm that has accomplished these goals and made four smaller acquisitions that total  $670 million in assets under management is EP Wealth Advisors based in Los Angeles, with $3.6 billion in AUM.

“Providing fiduciary advice as an RIA started to gain popularity 20 years ago, and since then many advisors left broker-dealers and wirehouses,” said Patrick Goshtigian, president. “The exodus left the market fragmented. We see the M&A trend accelerating to a point where the make-up of the RIA market will be like a barbell: national and super regional RIAs on one end, and the rest of the smaller advisors on the other.”

The $12 billion firm Mercer Advisors, based in Denver, is also an aggressive acquirer and has added 13 firms to its roster with a total of $4.5 billion in AUM.

“Since our first deal in early 2016, we have been an aggressive integrator of independent RIAs,” explained Dave Barton, former Mercer CEO and now vice chairman focusing exclusively on leading Mercer’s M&A activities. The key to Mercer’s success has been to focus on a cultural alignment with the acquired firm.

“To us, size doesn’t matter. We have done deals as small as $55 million in AUM and deals upwards of $2.2 billion. We are strong proponents of a fee-only, fiduciary financial planning, client-centric philosophy, so any potential partners must truly believe in that,” he said.

“In pretty much all of our deals, the selling principal stays involved. This is not
an exit strategy for that person. Rather, it is a career development opportunity not only for the seller, but also for his or her employees,” Barton said.

For Parallel Advisors in San Francisco, the success of two earlier acquisitions, which added $200 million in AUM to the $1.9 billion firm, has convinced the owners to launch an inorganic growth strategy, according to C.J. Rendic, CEO.

Going forward, there will be a further consolidation in the industry, Rendic said. “Our pitch to advisors is that we can sustain a high level of relationship management, while allowing advisors the autonomy and flexibility to manage their clients their way with our support.”

Consolidations are good for the industry and for the clients, Sonnen added.

“The industry is moving from practices to businesses. The more billion-dollar shops that exist, the more it shows that the RIA model, rather than a wirehouse model, is a good business model,” he said.

“For the clients, you need succession planning and having multiple advisors in the firm solves that problem,” Sonnen said. PFI’s report is available here.

This article originally appeared in Financial Advisor Magazine

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