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The calendar has flipped so it’s time to check in on the vibes of buyers and sellers within the RIA M&A Marketplace.
2024 was a record year for RIA M&A activity. According to Echelon Partners' 2024 RIA M&A Report, 366 M&A transactions occurred in 2024, which represents a 14% increase from 2023. This was driven largely by Private Equity - with total private equity transactions (including direct investments and tuck-in acquisitions by portfolio companies) increasing to 259 deals, highlighting private equity's continued and growing dominance in M&A and its pivotal role in dealmaking.
Before we talk about the "vibes" in today’s market, let’s set the stage with a short history lesson - From 2019 through 2021, advisor’s selling their businesses enjoyed "high-certainty deals", with high upfront cash payments and earn-out incentives that limited their downside risk. This trend was driven by a robust market, low interest rates, and strong competition among buyers. 2022 marked a turning point as buyers sought to space out cash payments and implement risk controls, like upside-sharing mechanisms through equity and earnouts. This trend was driven by economic uncertainty and fluctuating revenue, giving strategic buyers more leverage. The shift towards more balanced deal structures continued through 2023 and into 2024. Let's dig in more.
Shifting Dynamics Among Buyers -
Heightened Selectivity - We’ve seen a meaningful shift to a “Flight to Quality.” Buyers are increasingly prioritizing firms that demonstrate strong organic growth, a solid track record, and a compelling value proposition. This selectivity has led buyers to focus in on advisors with specific services, niches or segments of a market. The increased cost of capital, driven by rising interest rates, is making buyers more cautious about large cash outlays, leading to a greater emphasis on risk-aligned equity consideration and structured minority investments.
Deal Structures Continue to Evolve - we are seeing less cash and increases in components like equity, earnouts, and other performance-based incentives. Longer retention periods are becoming more common, for a smoother transition and to maximize client retention. The use of warrants are also gaining traction, allowing buyers to offer more cash upfront while securing future equity options.
Shifting Set of Buyers - RIA-to-RIA deals gained more prominence in 2024, with RIA Strategic Acquisitions eclipsing 2023 levels even before the start of the fourth quarter, according to Devoe & Company. This trend is driven by a desire of existing RIAs to gain assets, acquire talent, and expand services for themselves. We also so new entrants enter the space and the prominence of "sub-acquirers", adding to the complexity of the buyer universe. The rise of sub-acquirers, often subsidiaries of larger firms backing them financially, indicates the growing sophistication and strategic focus within the RIA M&A space.
Seller Motivations and Market Trends -
Succession Planning remained a primary driver for many sellers. The trend is amplified by the inability of next-generation advisors to afford buy-outs, which further contributes to the need for RIAs to seek an external sale. This trend is expected to remain a significant motivator for sellers in 2025 and beyond, given the ongoing challenge of attracting and retaining next-generation talent.
A desire for Scale and Resources has motivated advisors who are looking to accelerate their growth through the benefits of scale. Access to capital, technology, operational support, and expanded service offerings are key factors that attract advisors to join other advisory firms. This is especially critical in an increasingly competitive market where clients demand more sophisticated solutions.
Minority investments have gained traction, offering advisors the opportunity to access capital, gain liquidity, and leverage a partner's expertise while retaining control of their businesses. This allows advisor sellers the opportunity to participate in future growth while achieving some of their immediate financial and strategic goals.
The tru Advisor Experience team keeps a close eye on the trends in the RIA Financial Advisor recruiting and M&A space. Please let us know if you'd like to discuss more about how we can help.