Nearly three-quarters of respondents in the MarshBerry/WMIQ study are with registered investment advisory firms (43%), dually registered firms (18%) and independent broker/dealers (13%). The remainder work at regional and insurance firms, bank brokerages, wirehouses, and “others.” More than half (51%) are in senior management positions, 36% are advisors and the rest are insurance agents, brokers, trust officers, CPAs or “other.”

About a fifth of responses came from firms managing less than $50 million and 9% from firms with more than $20 billion. The median AUM was $175 million, and the mean was $3.1 billion.

The survey segments some responses by ownership interest in their firm, which was split evenly across the sample with 53% identifying as owners. Notably, the research found stark differences in the goals and expectations of owners versus non-owners of firms currently on the market.

Unsurprisingly, the data shows respondents without ownership interest tend to be “notably” farther from retirement.

While respondents involved in at least one deal over the previous 24 months were most likely to say it was an acquisition involving another firm, differences emerged regarding how equity owners look at these deals versus employees.

The survey did not distinguish between full and partial acquisitions.

Responses suggest a balanced approach to strategic growth at the management level, with a similar percentage of owners reporting involvement in the purchase of another firm or acquisition of an advisor or tuck-in team. The buyout of an equity partner, an equity-based capital raise, a merger or the execution of an internal succession received equal mention.

Those without ownership interest reported significantly less overall involvement and different deal types, perhaps reflecting limited decision-making authority or knowledge of firm strategy.

Looking ahead, more than three-quarters of owners are actively pursuing deals in 2024. A significant percentage (36%) of those are looking at firm acquisitions, and a quarter say they plan to pick up an advisor or tuck in a team. Mergers, sales and internal succession are also on the map for M&A participants in the near term.

Non-owners anticipate fewer deals, aligning with their counterparts only around equity buyouts and capital raises.

The divergence between owners and non-owners represents an opportunity for many firms; industry experts suggest communicating inorganic growth plans to employees early and consistently may reduce friction throughout the process.

“For those of us who are running firms that are considering doing transactions, there is a real value in explaining the ‘why’ to the team,” Greenspring Advisors CEO Patrick Collins said during the webinar.

“Why are we doing this? What is the advantage to you? What’s the advantage to the firm? If half the people at the company, which is close to what these numbers are showing, don’t really know why they’re doing this, it can create longer-term problems when trying to digest an acquisition.”

About a quarter of firm owners said they’re most likely to walk away from a deal due to unattractive terms or price. Nearly as many will end negotiations that involve ceding control or over a lack clarity around the business advantages.

One in five are unwilling to get into bed with culturally misaligned partners or do deals that may impact client retention.

“The No. 1 priority for anyone selling their business should always be fit,” said MarshBerry Vice President of Business Development Rob Madore.

“Put yourself in a client’s shoes,” he said. “If you’re able to articulate why you’re excited about the deal, then it’s probably a good fit.”

Complex due diligence requirements and integration challenges were cited by just 15%, followed by economic and market conditions, legal and compliance risks, regulatory changes, financing challenges, and employee retention at the bottom at 7%.

Non-owners, by contrast, placed a far greater emphasis on macro conditions, with 26% saying that’s the most likely reason a negotiation would end.

Buyers and sellers both tend to give equal weight to various potential deterrents. But buyers clearly won’t pay an unreasonable price, and sellers need to know how they’ll benefit before committing to a deal.

“Every combination of businesses is far more than just numbers on a page,” said Madore. “It’s a combination of business fit, client fit, owner personality fit, financial considerations, deal structures and more. None of this is general, so every owner or seller will have a different weighting of things based on their unique situation.

“The best and most successful deals are those where there is alignment between the two organizations and everyone is ‘eyes wide open’ about how things are going to work the day after the paperwork is signed and beyond.”

The most important consideration for buyers is whether the clients of an acquired firm will come with them. Nearly all believe client retention is at least somewhat important to a successful transaction, and half deem it “critical.”

Cultural compatibility, a fair price and financial health are also key considerations for the vast majority. A focus on providing fiduciary services was identified as at least somewhat important by 96% of respondents, even though fewer than half reported working in a pure fiduciary environment.

Buyers also look for firms with similar services and target clients, as well those with growth potential. They are less concerned about expanding services or providing more career mobility for employees.

Nearly one-third of buyers said offering new technology was not very important or not important at all. Many active acquirers have already invested heavily in platform technology, have a private equity partner that has done so, or some combination of both.

“It certainly makes the integration easier if you’re familiar with a particular system or using some of the same systems,” Kovalski said during the webinar. “But, in terms of really focusing on the right fit, I don’t see technology as being an important consideration at all.”

For acquisitive firms with less than $500 million under management, employee retention and focus on fiduciary services receive notably less consideration than at the larger shops.

“We are seeing more that are really looking for strategic fit, focusing on organic growth and talent,” Kovalski said.

Some firms won’t even consider a target with a market-adjusted annual growth rate of less than 5%, she noted, excluding recruitment and acquisitions.

“Which means that sellers need to look at what they’re doing,” she said. “Those that have sustainable organic growth are investing in the kinds of activities that provide for greater than market growth.”

Sellers clearly want to be well compensated for the business they’ve built and nurtured, and they want to be acquired by a firm that will take good care of it.

They also care about keeping their clients happy and joining a firm with a fiduciary focus.

While buyers everywhere are showcasing technology as a key attraction, it appears they would do better to focus on client retention strategies and training, take up the fiduciary mantle or highlight strong leadership.

Owners care less about new technology and enhanced capabilities, but these aspects are very important to non-owners.

Non-owners consider enhanced technological capabilities to be the top consideration in a potential sale, with 62% saying it’s critical. Regarding new and innovative technology tools, 69% of non-owners think they’re important, and 38% feel they’re essential.

All non-owners view client retention as important, with 46% saying it’s critical. This compares with 78% and 36%, respectively, of owners.

Other areas of divergence include service/clientele synergies, growth potential, whether equity is offered in the transaction, expanding client service, providing new opportunities for employees, and preserving a role for the founder. These factors are less important to owners. Oddly, just 30% of owners believe preserving a role for the founder is important, versus 77% of non-owners.

Kovalski said most of the results are consistent with conversations MarshBerry has had with its clients, but she was surprised more sellers weren’t interested in expanded services and capabilities. This may indicate responding sellers are still in the early stages.

“Once an owner starts a process, they become exposed to things and can start to visualize what a world would look like if they had access to A, B, C, and D,” Kovalski said. 

Who will come out on top in the current environment?

Owners and non-owners alike believe the market will favor sellers, with owners significantly more convinced, while roughly a quarter of each group believe buyers will be better positioned. Thirty-five percent of employees are unsure, as are 28% of equity owners.

“Private equity represents somewhere around 65%, consistently, of acquirers in the market,” noted Kovalski. “Which particular private equity-backed buyers are responsible for that activity can shift but, overall, private equity is driving most of this activity.”

It is likely to be these and some newer well-capitalized platforms that win on the buy side, according to industry observers.

Sellers in desired locations who satisfy many of those top buyer considerations and demonstrate strong growth potential will command the highest prices.

Despite turbulent markets, a spike in the cost of capital and political unrest, eight in 10 respondents expect their firm to increase in value this year. Only 2-3% anticipate losing value, while the rest expect it to remain steady.

The top drivers of that expected change were earnings- and asset-based valuations, with owners favoring earnings and employees favoring asset-based.

Similarly, 82% of owners and 76% of employees believe they will add assets this year. However, a slightly larger contingent of owners anticipates reducing assets (6%, compared with 2% of non-owners), and a smaller contingent expects no material change (12% vs. 23%)

“We always want to understand, ‘well, how are you going to achieve this?’” said Kovalski. “One of the things we always do is look at historical growth rates as a proxy for future growth rates. If they’ve been growing historically at certain rates and they’re continuing to invest in that, then it makes a lot of sense.

“I do think there’s an overreliance on market appreciation for growth,” she added. “That’s really out of an RIA leader’s control, but they’re still expecting that a lot of the value uptick will come from market appreciation. That gives me a little bit of agita.”

Collins predicts the largest firms will see stalled growth over the coming year. 

“What about these mega RIAs that are trading at 22 times earnings internally when the public markets are saying they’re big teens?” he said. “Those are the ones I feel are maybe a little bit more at risk to not see massive earnings.”