Prices for RIA firms are “frothy” right now, with prices at eight or nine times EBITDA or higher, according to Shirl Penney, chief executive of Dynasty Financial Partners.
“There are 10 buyers for every seller,” Penney told Financial Advisor Wednesday at Pershing’s annual Insite conference in San Diego.
Large bank buyers and family office firms are on the prowl, including billionaires who want in to the RIA business. “The space has been discovered,” he said.
Elliot Weissbluth, chief executive of Hightower, who spoke with Penney at a session covering the breakaway market, said some buyers are dangling offers worth 12 to 14 times EBITDA.
“If you want to sell to a molester, you can,” Weissbluth said of buyers offering such rich deals. “They’re not stupid. They’ve done the math. … The buyer has some other economic agenda” that will take advantage of clients.
“Beware [of] a distribution, or a product component to it,” he said—or, as Penney joked, a “revenue synergy.”
Even with potentially big offers, RIA owners who are still on a growth curve always risk selling too soon and not benefitting from the expansion of their firms. Owners might look to sell a small piece of equity or revenue to meet liquidity needs in the short term, Penney and Weissbluth said, saving the major cash-in for later.
Penney said one of Dynasty’s fastest-growing businesses is bringing on established RIA firms, whose cost structures tend to be higher than existing Dynasty clients. “The reason for that is they’ve over-hired, primarily,” he said. “They’ve had to do all these things themselves within their home office” rather than outsource to a firm like his or Hightower.
RIA Firm Prices Rising To Insane Levels, Exec Says
June 15, 2017
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Hmmm...12-14X EBITDA? Easy money chasing deals; I would sell at that multiple all day except the key variable is whether owner salary is expensed before arriving at EBITDA. EBOC seems a better measure and then carve out salaries post deal which are not included in the 12-14X number