A key metric for registered investment advisor valuation hit its highest mark in nearly a decade last year, even as more than 40 dealmakers seem to be ramping up discussions with potential targets in 2025, according to the latest RIA deal report by consultancy Advisor Growth Strategies.
According to the Phoenix-based consultancy’s latest RIA Deal Room, the median-adjusted multiple on earnings before interest, taxes, deprecation, and amortization (EBITDA) hit 11.0 in 2024, up from 9.9 in 2023, and a 37.5% increase from 2020’s 8.0 multiple. That multiple is often used in valuations to guide acquisition talks, which appear to be even more prevalent this year than last.
According to the consultancy, 96% of RIA respondents say they have been contacted twice a month for M&A discussions, up from 68% of firms reporting that level of outreach in 2024.
“You have this north of 40 number of buyers that are out there trying to be serial acquirers,” said Brandon Kawal, a principal with Advisor Growth Strategies and lead author of the report. “They’re all thinking about where their dollars are best used and where they will get the greatest integration benefit.”
On the buyer side, the larger the RIA, the more they were willing to pay. For example, bids on firms with $2 billion in assets under management increased by more than 18% in 2024 compared to the prior year, as buyers see such deals as getting them “more bang for their buck,” Kawal said.
That is a shift from 2022, when the market decline caused firms to pull back on larger deals. Today, buyers feel more confident in the stability of the capital markets.
“They’re back to wanting to take some bigger swings in the market,” Kawal said.
However, the window for such large firms may be shrinking in 2025. For one, RIAs with a $1 billion market cap may not be interested in selling, according to Kawal. Second, that large group of buyers is now battling in the same pool.
“You have this perfect storm of more people on the buy side. How many firms are left that will want to transact?” he said. “It’s not as many as the sub-billion dollar market—not by a lot.”
There’s no question that private equity is a key driver in the consolidation.
According to Piper Sandler’s most recent reporting, 195 deals in the wealth management space were backed in some part by private equity in the last 12 months through February. That compares to 35 deals with a minority stake buyer or sponsor, 35 by an independent wealth manager and just 14 by an asset manager.
Wealth Enhancement, which announced another deal Wednesday and is backed by Onex Partners and TA Associates, was the leader in that time period, according to the investment bank, penning 15 deals. They were followed by Waverly Advisors, backed by Wealth Partners Capital Group, with 10 deals, and a number of private equity-backed firms, including CI Financial (Coreint), Cetera and Modern Wealth Management, which completed eight deals.
According to Kawal, this flood of interest can create “saturation risk” for buyers, who may struggle to stand out among the pack and land their desired bids at the right price.
“The discount (for buyers) is that they can lose opportunities, and they can have this failure to launch strategy,” he said. “It doesn’t mean the business will fail, but their ability to go out and acquire could because they aren’t able to stand out.”
For sellers, the “saturation” risk is more obvious, with buyers gravitating to RIAs that come to market with a clear, repeatable growth story and “portability of the client experience,” such as its planning, investments and process systems, according to the report.
“Probably you go to market, and you find a bid, but your ability to drive a premium is going to be based on whether you have done the business building and whether you are finding a partner who will see your value as you see it,” Kawal said.
According to a case study by Advisor Growth Strategies, firms with “non-ideal” attributes were hit with a 21% discount from their better-off peers.
The report also noted a “stabilizing” of deal structures in acquisitions, in which firms are putting up strong packages up front but also baking in some protection to ensure they are motivated to keep growing.
“For buyers, it’s a way of saying, ‘We know the market is competitive. We know we have to have a minimum viable product for closing and retention, but ultimately to hit the pitch, we need to underwrite some performance that you’re going to put some risk in with us both through equity and then growth,” Kawal said. “For sellers, you need to watch out for the headline multiple—it isn’t the whole story.”
In addition, the report noted more sellers are considering ways to raise capital while maintaining control of their firms in the current hot market.
“Many minority transactions contain significant investor protections such as preferred returns, blocking rights and the like,” the researchers wrote. “The industry will now have to consider whether they want to let someone inside the decision-making room by taking capital or changing course through a full change of control.”
Minority investors such as Merchant and Constellation Wealth Capital have been active to start 2025, with new minority investors such as Joe Duran’s Rise Growth Partners also making noise.
