Run rate is part of a more sophisticated measure of value that has emerged as M&A activity has become increasingly giddy in the past few years. According to a KPMG report called “Prove It: Show Me the Money,” run rates reflect the effect of investments in the business that don’t appear on the financial report—things like revenue gains from planned price increases, “or the savings from cost-cutting measures initiated in the past 12 months, or the contribution of an acquisition that has not been executed.”

“With run-rate adjustments, the seller paints a picture of the value a buyer may realize post-sale—and seeks to be paid for all or part of this upside,” the KPMG report said.

These metrics are where buyers and sellers are likely going to stop seeing eye to eye.

“The big picture here is that the pandemic and the resulting market volatility dramatically changes things for a lot of people,” said Pete Dorsey, managing director of institutional sales at TD Ameritrade Institutional. “The state of the marketplace will work in favor of buyers and against sellers. We’ve seen a big shift, an inversion, in the M&A environment from recent years, when demand outstripped the supply. Now the supply is likely to outstrip the demand.”

Scott Slater, vice president and a mergers-and-acquisitions specialist at Fidelity Custody & Clearing Solutions, says that RIA earnings are clearly going to be affected by falling asset values, and that’s going to affect the multiples that advisors are asking for their firms.

Up until now, “we had an awful lot of upward pressure on multiples,” Slater said. Many advisors knew they were in a period of peak valuation by the end of 2019, and that there’s been an arms race for talent, especially as private equity comes into the space. Those factors haven’t changed, he noted, and he expects the activity will accelerate again after the merger lull prompted by the Covid-19 pandemic.

What’s almost more important is that deal structures will likely change, Slater said. Buyers will not pay as much cash up front, as they have been lately.

According to Fidelity’s report, “M&A Valuation and Deal Structure—Insights from Leading Serial Acquirers,” the median up-front payment since 2017 had recently risen to 45% from 35% five years ago. “Looking deeper, 43% of firms mention that for the majority of the deals conducted since 2017, up-front payment (cash and/or equity) is over 50% … with 9% of firms paying over 90% percent up front.” Not coincidentally, sellers were also asking for shorter earn-outs periods.

That’s all going to likely change in a buyer’s market.

“Structure is where you can bring more control from a buyer’s standpoint to managing the risk that’s involved,” Slater said. “There’s still plenty of capital available. So it’s not going to be for lack of that.”