While acknowledging the strength of the market and valuations for RIA sellers right now, some are quick to note that assets in general have rebounded since hitting bottom in March 2009 during the credit crisis.
Since then, the S&P 500 is up more than six times from its low of 666 during the credit crisis. Why should RIAs, which book fees based on the ups and downs of clients assets, be any different?
Capital is cheap, dealmaking is plentiful and assets are in demand, said Alois Pirker, research director of wealth management at Aite Group. But its a fragmented market and firms have a hard time getting to the right scale.
You could say it was crazy how inexpensive things were 10 years ago, said Robert RJ Moore, CEO of Private Advisor Group, an RIA and LPL Financials largest branch with $29.6 billion in client assets.
Private equity firms are sitting on something like $1 trillion to $2 trillion in cash, Moore noted. Thats a massive underpinning to the M&A market. That cash has to get invested. Private equity firms dont get paid for cash sitting in a fund.
Not all RIAs will have a premium 18 times to 20 times their EBITDA valuation, of course. Thrivents Armitage notes that firms typically undergo a variety of valuations, including a valuation done for a potential internal sale or transaction. That could place a multiple of seven to eight times EBITDA on an RIA, or less than half the current talk of the market.
Thats where the deal-making pixie dust comes in. According to Armitage, an RIA seller and buyer can sit down and look at ways to boost the firms cash flow in the acquisitions aftermath, upping a deals multiple more favorably for the seller.
For example, what kind of savings would a merger create if the sellers human resources department or chief financial officer were eliminated, or does the combined firm create scale that puts pressure on vendors to lower prices, she said, all bettering the bottom line.
How are you calculating EBITDA? Armitage asked. The more crafty the financier is, the more magic or sparkle they can add to sizzle the deal.
The post How high can RIA valuations go? appeared first on InvestmentNews.
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